Ampol fuel and in-store sales offset Lytton refinery outages

Ampol’s Lytton refinery was hit by two costly outages in 2023, but stronger fuel and in-store sales have helped the company to another year of record earnings.

Discounts and loyalty programs have helped Ampol combat cost of living pressures. Picture: Sarah Marshall

Discounts and customer loyalty programs are helping Ampol combat cost of living pressures facing Australian motorists, with stronger fuel and in-store sales offsetting a decline in refining earnings, and helping the fuel and convenience group to another year of record earnings.

A small uplift in earnings within the group’s convenience retail division - include retail fuel and in-store sales - came despite a 19 per cent fall in cigarette sales caused by more smokers switching to illicit tobacco.

Ampol managing director Matt Halliday said state and federal governments needed to put a “significant focus” on stamping out the illicit tobacco trade, but given cigarettes were a low margin category for the company, it was able to offset the decline with sales growth in other areas of the retail business.

However he admitted cost of living pressures were affecting spending behaviour across Ampol’s network.

“We can certainly see the customer is under pressure, and we can see that through higher scan rates for loyalty cards, we can see that through the higher presentation of shopper dockets on redemption,” he told The Australian.

“A few of the things that we do to provide discounts and encourage loyalty from our customers - we can see they are really picking up by 3 or 4 per cent year-on-year, so we can see that pressure that consumers are under.

“Our response is to have those offers in market, to make sure that we’ve got a good value play in market, but you can certainly see the pressure there.”

Improvements in Ampol’s convenience retail division, and a full-year of earnings from its Z Energy acquisition in New Zealand, helped to offset a 47 per cent slide in earnings at Ampol’s Lytton refinery in Brisbane, where EBIT fell to $362.3m due to two outages during the year.

Refining margins also eased from $US17.86 in 2022 to an average US$12.81 per barrel in 2023.

Replacement cost operating profit EBIT – the company’s preferred measure of performance – was up 2.2 per cent to $1.297bn, while one-off items including unrealised losses from the mark-to-market value of electricity derivatives resulted in a 25 per cent fall in statutory net profit to $549.1m.

Sales volumes hit a record 28.4 billion litres, up 17 per cent compared to 2022.

Ampol will pay a final dividend of $1.20, bringing its full-year payout to $2.15 - at the top end of its targeted payout range. It also declared a higher than expected special dividend of 60c. The company’s shares were trading 1.5 per cent higher on Monday at $38.15.

In its outlook for 2024, Ampol estimated that capital expenditure would be 10 per cent higher than the $556.6m spent in 2023, including planned upgrades at the Lytton refinery.

A final investment decision on a $250m upgrade of the refinery to produce low sulfur gasoline is expected “in the coming weeks”, ahead of the introduction of the federal government’s new fuel standards.

The project is expected to deliver higher margins at the refinery once its commissioned in the second half of 2025.

Lytton along with Viva Energy’s Geelong refinery secured a deal in May 2021 to remain open for at least six more years after the Morrison government’s $2.35bn rescue deal ensured a sovereign fuel production capability was maintained.

Both Lytton and Geelong had been under threat following sustained pressure from larger Asian refineries and Covid-19 lockdowns.

Mr Halliday said the facility had emerged as a “strategic asset” for the country, following geopolitical tensions which continued to disrupt global fuel supplies.

“The outlook looks far more constructive than it did during Covid,” he said.

“Covid closed in the order of 5 per cent of global refining capacity - that’s quite a significant step change on the supply side.

“Demand’s recovered really strongly, stocks are below historical levels, and so when you overlay on that a global system that has to run harder, and you’re seeing more outages, you’re seeing the overlay of geopolitics - that would all say to us that the refinery has got quite a life in front of it.

“And it’s a strategic asset from the country’s point of view. Transition will happen over time, and we think Lytton’s got an important role to play in terms of renewable fuel.

“For a number of years it’s going to continue to play an important role in our system and for the country’s fuel security. And so we’re investing on that basis that the refinery has quite a significant life ahead of it.”

Ampol is currently exploring opportunities to manufacture sustainable aviation fuel and renewable diesel at Lytton, and Mr Halliday believes Australia should play a significant role in sustainable fuels as part of the decarbonisation of heavy transport.

Meanwhile, as part of its strategy to lure customers with its convenience offering - a similar strategy to rival Viva Energy - Ampol is looking to add 20 new restaurants across its network, including more Boost Juice and Hungry Jack’s outlets.

Mr Halliday said QSR (quick service restaurants) presented an opportunity to capitalise on Ampol’s network of “high quality real estate”.

“What we see in terms of Boost and Hungry Jack’s is a strong complementary nature to the network and the local market environment,” he told analysts on Monday.

“We’re very disciplined around where we will put the stores and they are not the only brands that we will focus on. What is important in convenience retail is getting the right offer in the right local market environment and that will come from a range of brands, not a principal partner that is going to roll out across the entire network.”