Ampol makes $1bn bet on the future of combustion engines over EVs
The retailer and refiner has snapped up a portfolio of around 500 EG-branded petrol stations, consolidating its position as the country’s biggest fuel retailer. The deal also secures longer-term distribution for Ampol’s Lytton refinery in Brisbane, which is one of the two remaining petrol refineries in Australia.
For drivers, there won’t be much difference. Much of the EG sites already have Ampol branding on them, and already sell fuel from the Australian refiner.
However, the deal signals Ampol chief executive Matt Halliday is prepared to take the calculated long term risk on the sites, including the pace of decline in fuel sales and eventual site clean-up costs.
The acquisition, dubbed Project Emerald among Ampol insiders, has been more than a year in the making, and was first revealed by The Australian’s DataRoom column last April. The transaction still needs the green light from the competition regulator, with Ampol already offering to sell 20 overlapping sites under the ACCC’s new fast-track approval process.
This is the third time in seven years the EG sites have changed hands. They were initially owned and developed by Woolworths then sold in 2018.
At the time, privately-held European retailing giant EG Group was on a debt-fuelled spree. It paid $1.7bn for the portfolio and had plans to get even bigger — including through a buyout of Ampol (then called Caltex). This never eventuated.
The debt pressures have finally caught up with EG Group, however, underscoring the substantial haircut on the deal. The transaction is relatively low risk. Ampol as the main EG supplier, already knows the sites and the longer-term dynamics of the fuel retailing market.
Despite also using its own debt to fund the deal, Ampol investors have firmly backed the expansion, sending shares nearly 8 per cent higher on Friday.
To be clear, Ampol’s Halliday still anticipates electrification will change the dynamics of Australia’s car fleet and there’s a role to play for the retailer.
He has installed EV chargers at Ampol’s head office in Sydney’s Alexandra and has spent an eye-watering amount getting high capacity power cables hooked up to some of Ampol’s highway sites for fast charging. There’s also EV public charging bays being built at his other sites.
But, he’s also a realist. The transition will take decades, and combustion engines are going to still make up a large chunk of the national car fleet beyond 2050.
Even with EV sales growing at a fast pace — mostly led by an influx of newer Chinese brands like BYD — it is from a low base.
The EV market is dominated by early adopters and increasingly bulk buyers, but growth is expected to normalise over time. Where China is fast transforming its national car fleet, broker Macquarie has longer-term projections of gradual up-take in Australia, with EVs only expected to make up a third of the cars on the road by 2050. Hybrid engines are also making more inroads.
Even with the EV gains so far, adding more than 500 sites to his network shows Halliday has eyes on the bigger cohort of petrol driven cars.
For Halliday, the addition of the EG network also accelerates the changes he’s been making to his $6.5bn Ampol. He’s been trying to diversify the mix of his earnings away from fuel alone by generating more from retail and conveniences sales at his petrol stations.
There’s good reason for this: profit margins on stock inside the shop are far bigger than selling fuel itself.
These margins are behind the massive investment already underway, overhauling his existing fuel network and including the construction of highway “super sites”.
It also moves Ampol away from the more volatile refining earnings, which swing wildly on the back of moves in global oil prices. Currently, 58 per cent of Ampol’s annual earnings come from fuel and convenience. The addition of the EG portfolio will take this to 64 per cent.
While building a premium proposition, Halliday has been quietly rolling out discount fuel sites to meet competition from other discounters in the market like United. These are the unstaffed “U Go” branded sites and have been converted from less profitable petrol stations.
Already 34 sites have been converted to U Go, with more than 60 planned by the end of next year. With EG’s properties, Halliday expects 125 in total converted to U-Go petrol stations in coming years.
For the bulk of the EG network, which are still relatively new from a Woolworths build, the prize is conversion to Ampol’s premium convenience brand Foodary.
Even with his bet on the future of fuel, Halliday wants EV owners to drive into an Ampol, not past it.
Fast chargers still require drivers spend more time waiting at the “pump” compared to filling up a tank with liquids. For Ampol, that’s all opportunity to sell more inside the stores.
johnstone@theaustralian.com.au
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Ampol’s stunning $1.1bn move to almost double the footprint of its petrol stations is not only about expansion. It’s a calculated bet on the future of internal combustion engines versus electric vehicles.