Caltex Australia : 2017 AGM

2017 AGM ADDRESSES

We would like to begin today by acknowledging the Gadigal people of the Eora Nation, the traditional custodians of this land, and we pay our respects to their Elders both past and present.

Good morning everyone, and welcome to the 2017 Annual General Meeting of Caltex Australia Limited.

We have a quorum of shareholders in attendance, so I declare this meeting open. My name is Greig Gailey and I have the honour of being your Chairman.

There will be several opportunities today for you to ask questions. I will open the meeting to general questions after Julian and I have both reported to you. You will also have an opportunity to ask questions about each item of business.

Before the formal business of the meeting begins, I would like to cover some introductory matters:

• If we need to evacuate, you can exit through the main door at the back through which you entered - or at the exit points on each side of the stage. Please follow the directions of the Wesley Centre staff.

• Today's meeting is being webcast and recorded.

• Please take a moment now to check that your mobile phone has been turned off, or is on silent.

Let me now introduce the people seated on the stage.

On my immediate left is Julian Segal, Managing Director & CEO. Julian has served as your Managing Director & CEO since July 2009. Bruce Morgan is seated next to Julian.

Bruce joined the Board in June 2013. He is the Chairman of the Board's Audit Committee and a member of the OHS & Environmental Risk Committee and the Nomination Committee. Bruce is being considered for re-election today.

Next to Bruce is Penny Winn.

Penny joined the Board in November 2015. She is a member of the Human Resources Committee and the Nomination Committee

Melinda joined the Board in March of this year. She is a member of the OHS & Environmental Risk Committee and the Nomination Committee. Melinda is being considered for election today.

On my immediate right is Lyndall Stoyles, Executive General Manager, Legal and Corporate Affairs and our Company Secretary. Lyndall was appointed to her role in October 2016.

Barbara joined the Board in April 2015. She is the Chairman of the Board's Human Resources Committee and a member of the Audit Committee and the Nomination Committee.

Next to Barbara is Trevor Bourne.

Trevor joined the Board in March 2006. He is the Chairman of the Board's OHS & Environmental Risk Committee and a member of the Human Resources Committee and the Nomination Committee.

Steven joined the Board in October 2015. He is a member of the Audit Committee and Nomination Committee.

I would also like to introduce members of the Caltex executive management team who are here today. Please stand as I introduce you:

• Simon Hepworth: Chief Financial Officer
• Frank Boys: Acting Executive General Manager - Supply Chain Operations
• Karen Bozic: Acting Executive General Manager - Retail & Convenience
• Andrew Brewer: Executive General Manager - Projects
• Viv Da Ros - Chief Information Officer
• Louise Warner: Executive General Manager - Fuels
• Joanne Taylor: Executive General Manager - Human Resources.

In addition to the management team, we also have here today representatives of our external auditor, KPMG. Greg Boydell and Julian McPherson, the audit engagement partners for Caltex, are here to answer any questions you may have on audit related matters.

It is now time to move to the formal business of the meeting. I will take the Notice of the Annual General Meeting as read. I will now turn to my formal Chairman's message.

At Caltex, safety is our number one priority. Consistent with our values, Caltex prioritises the care of our employees, the community and the environment. All levels of the organisation - from entry level through to the Board - are evaluated on personal and process safety.

We are consistently one of the best performers amongst the ASX100. We are, however, always looking to improve our performance.

In 2016, we were particularly disappointed that our Lost Time Injury Frequency Rate increased from 0.62 to 1.11 injuries per million hours worked. Although there was no change to our Total Treatable Injury Frequency Rate and the severity of injuries continued to decline, for Caltex this is simply not good enough. We aim to do better. We will not compromise on our aggressive targets and we remain committed to achieving zero incidents.

Accordingly, challenging targets have again been set for both employees and contractors in 2017. Financially, 2016 was a good year considering the challenges we faced.

At Caltex, we primarily assess our profit performance on the basis of replacement cost. We do this because it removes the impact of windfall gains and losses that are incurred as a result of movements in crude prices and exchange rates, two critical determents over which the company has no control.

In 2016, our after tax replacement cost operating profit (excluding significant items) was $524 million, compared with $628 million in 2015.

Lower refining margins were experienced in 2016. Refining margins were exceptionally good in 2015 and delivered profits of $406 million at our Lytton refinery. Despite the lower refining margins in 2016, Lytton still made a replacement cost operating profit of $205 million as a result of strong operational performance and good cost control. Marketing and Supply had another bumper year earning a replacement cost of profit of $709 million. This performance reflected strong sales of our premium range of Vortex fuels and the continuing maturity of our Singapore supply business.

For those of you that prefer to assess performance on an historic cost profit basis, Caltex recorded an after tax profit of $610 million for the 2016 full year. This compares with the 2015 full year profit of $522 million, which included significant items gain of $29 million after tax.

The 2016 result includes a product and crude oil inventory gain of $86 million after tax. This compares with the inventory loss of $135 million after tax in 2015.

Julian will provide more detail on financial and operational performance in his address.

Total Shareholder Returns are our priority.

Shareholders were rewarded with a fully franked total dividend of 102 cents per share for 2016, comprising a final dividend of 52 cents per share and an interim dividend of 50 cents per share. These dividends were consistent with Caltex's dividend payout policy of 40% to 60% of full year after tax replacement cost operating profit, excluding significant items.

Shareholders also had the opportunity to participate in the heavily oversubscribed $270 million off- market share buy-back undertaken in April 2016. We will continue to release surplus franking credits over time where it is efficient and sensible to do so.

We remain committed to returning surplus funds to shareholders after taking into account Caltex's earnings for the period, future capital requirements, the outlook for the business and maintenance of an investment grade BBB+ credit rating.

We regularly review the allocation of capital and sensibly balance growing our existing business, positioning the company to overcome challenges and returning capital to shareholders.

At Caltex we do not see reinvestment for growth and capital management as mutually exclusive. Let me now talk about two significant events that occurred in 2016.

I am sure that you will have seen press commentary late last year on wage underpayment within the Australian franchise industry. While Julian will address this in more detail, I would like to provide the Board's perspective.

Let me be very clear up front. Caltex has not underpaid its employees. Nor does Caltex condone underpayment of employees by its franchisees.

Franchisees are by definition independent business people and Caltex does not have a detailed knowledge of franchisee operations. In the majority of cases our franchisees are honest and successful business people who value their customers and employees.

Unfortunately, wage underpayment by franchisees has been uncovered within the Caltex franchisee network. We are currently auditing the network and where any wage underpayment is found, we exit those franchisees from our network.

The Board was very concerned and wanted reassurance that Caltex was not in any way contributing to this unacceptable behaviour. As a result, Caltex undertook an independent review of its franchise model. This review examined the profitability of the model for franchisees and included external legal advice supported by an assessment of franchisee profitability by a leading, independent advisory firm. The review confirmed that the model allows franchisees to make a profit, draw a wage, and pay employees in accordance with lawful wage rates.

There is no correlation between site profitability and wage underpayment.

Nevertheless, we are very concerned about the conduct of some of our franchisees. They are largely the public face of our company in the important retail market.

Accordingly, while we ourselves have neither conducted the practice nor contributed to it, we have announced this week the establishment of a fund to assist those franchisee employees where we have identified and confirmed wage underpayment. We do this in the interest of fairness and in recognition of our public standing as a reputable and responsible organisation.

Let me now move onto the second event. In December 2016, we were disappointed to learn that our successful partnership of 13 years with Woolworths would likely come to an end with Woolworths' announcement that it had decided to sell its fuels business to BP.

Our historical relationship with Woolworths has primarily been as a wholesale supplier of fuel. In addition, we extended the Woolworths shopper docket discount to approximately 100 Caltex- controlled service stations in areas where Woolworths was not well represented.

The opportunity to acquire the Woolworths fuel business was a complex one. It was not a straightforward acquisition of assets. It would likely have had significant implications for both our aspirations in the convenience sector and our future ability to price our retail volumes.

While we do not like losing volumes, including Woolworths' volumes, we struggled to justify this transaction financially based on the proposed operational terms and conditions. Overpaying for

acquisitions, whether it be in the form of cash or constraints on the business, is not in the interests of our shareholders.

The BP acquisition is subject to competition clearance and it has been indicated that this is not likely before early 2018. Caltex will continue to supply Woolworths in the interim and we are actively progressing opportunities to replace the profit which will be lost after this transaction completes.

Towards the end of 2016, we announced two acquisitions, including our first overseas acquisition.

Gull New Zealand sells around 300ML of transport fuel (petrol and diesel) representing around 5% of the New Zealand market. The Mount Maunganui terminal is the largest facility of its type in New Zealand with total storage of approximately 90ML. Gull has 77 retail sites in total, including 55 controlled retail sites (around one-third of sites unmanned) and 22 supply sites.

Given geographic and market similarities, New Zealand is a logical step out for Caltex. Gull New Zealand provides an opportunity to build on our trading and shipping capabilities via Ampol Singapore to capitalise on Gull's differentiated price challenging and innovative offer that includes many unmanned sites.

We expect to have the transaction completed by June of this year.

We have also announced the acquisition of Milemaker Petroleum. The Milemaker acquisition will provide us with direct control of an additional 46 retail sites in what was previously an under- represented position in Melbourne and its outer suburbs. This improves our ability to service Australia's second largest city and extend our new and improved retail customer offering.

The Australian Competition and Consumer Commission has today announced a decision not to oppose Caltex's proposed acquisition of Milemaker Petroleum. We are pleased with the outcome and anticipate that the transaction will be completed next week.

Both acquisitions are expected to be earning-per-share accretive by the end of the first full year of operation under Caltex ownership.

Let me now conclude with some broader strategic comments. In 2016, we reviewed and refreshed our vision and strategy.

Last year, the Caltex Board went to Silicon Valley so they could be well versed on what to expect in the future. There can be no doubt that the prospect of a long-term decline in demand for Caltex's main product, petrol, will occur, due to increasing fuel efficiency and, eventually, the advent of mass-market electric and self-driving cars.

This decline is, however, not imminent. There is every reason to believe that Caltex's fuel business will continue to have many good years and will continue to make good money. The current penetration of electric vehicles in Australia is 0.1% and the average Australian vehicle has a ten- year life.

But good companies think ahead. They anticipate change. They manage and build their traditional business whilst exploring new opportunities that will better position them for the future.

Amongst its many assets, Caltex has extensive well-placed real estate portfolio with lots of parking. Caltex is already a major player in the convenience retail space but the Board and management are convinced that there is a significantly untapped opportunity to better meet evolving consumer demand with a wider service offer and a strong focus on fresh produce.

Our refreshed Freedom of Convenience strategic vision, is based on two fundamental principles:

• To Protect and Grow our integrated transport fuels business; and

• To Extend the business, by leveraging our existing customer and mobility assets.

At the heart of Freedom of Convenience is the customer. Customer's expectations of us are changing as the economy and their way of living evolve. Our Freedom of Convenience Strategy will see us move with these changes.

Convenience is not the only asset in the Caltex armory with opportunities to confront the challenges of the future. Caltex is a major international trader, stores and safely and responsibly