Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ampol Ltd (CTXAF, Financial) reported a strong RCOP EBITDA of $737 million and RCOP EBIT of $502 million, demonstrating resilience in difficult trading conditions.
- The company declared an ordinary interim dividend of $0.6 per share, representing a payout ratio of 61% of RCOP NPAT excluding significant items.
- Ampol Ltd (CTXAF) has made significant investments in asset reliability and capability, including the Lytton ultra-low sulfur fuels project and the development of EV charging networks in Australia and New Zealand.
- The convenience retail business showed a 5% year-on-year earnings growth, driven by a higher mix of premium fuels and strong in-store performance.
- The New Zealand segment, including Z Energy, delivered RCOP EBIT of $127.6 million, slightly ahead of last year, despite challenging market conditions.
Negative Points
- Total fuel sales volumes were down 6.5% year-on-year, largely due to reduced spot or discretionary sales in the international business.
- The Lytton refinery experienced lower production due to a steam outage and catalyst supply disruption, impacting overall earnings.
- F&I International earnings were lower due to a more stable market in the second quarter, reducing opportunities for discretionary sales activities.
- The convenience retail business saw a 4.8% reduction in total retail fuel volumes, primarily from a decline in base grade petrol volumes.
- The EV fast-charging network development is progressing slower than expected due to difficulties in connecting to the grid in Australia.
Q & A Highlights
Q: Can you give us some color on whether your like-for-like sales ex tobacco across the network have actually grown? And related to that, the contribution or some update on how the major QSR conversions are performing and how much more of that you think you can do across the network?
A: Like-for-like were broadly almost flat excluding tobacco. In terms of QSR, we believe they're performing well to business case. It's been a little soft for the start of this year from a sales perspective. We believe that's broad across the QSR market. We will continue to deliver some further sites in the back half of 2024 and to improve our confidence in the rollout into 2025. We've got a number of sites targeted with Hungry Jacks and some other QSR brands as well, including the M4s which we currently have under construction. And we expect that we'll continue to diversify our QSR portfolio across our other brands that fit in smaller format and then the traditional QSR model.
Q: Has there been any change in thinking around capital management? Or is this just simply once you cycle out of the very strong first half, it does actually take your leverage within the bottom end of the target range?
A: I wouldn't read too much into it. I think with the interim dividend and the results we've just delivered, we felt best appropriate to go down the middle of the range, down the fairway, if you like. We're coming into a period where we are, as I flagged, are going to be investing a little bit more in capital expenditure, particularly linked to things like the ultra-low sulfur fuels project. We're mindful of that. But we're being very clear and consistent with our approach to capital management and capital allocation, and we'll just make an assessment at year end.
Q: How should we think about CapEx into 2025? Should we expect a material reduction just given the ultra-low sulfur fuels projects expected to be complete mid-25? And could you provide some color on Ampol's investments in the highway sites?
A: CapEx for '25 will be similar to '24, before returning to more normal levels in the 4 to 450 range over time. This is driven by the continuation of the low sulfur fuels project and a significant T&I around the FCC next year. Regarding highway sites, they are performing strongly, delivering returns in excess of 15%, with volumes and margins significantly higher than average sites. The M4s coming into the pipeline will complement our suite of large New South Wales highway sites.
Q: Can you talk through the margin impact in the second quarter with the funding outage relative to original indexes, and the higher OpEx that you need to carry through the T&I?
A: Margins will be lower given the impact of the T&I, with a production impact of about 300 million liters. The T&I is progressing well, and we expect to resume stable operations with high levels of reliability coming out of the T&I. You have to carry OpEx through the period of the T&I without the production, which impacts operational costs.
Q: Can you remind us what are the right conditions for the international business to return to a more normal level of earnings?
A: The international business benefits from geopolitical impacts and price volatility. We are putting steps in place to improve performance, and you should take an average that incorporates the strong performance over the last couple of years. The business will improve with some variability and volatility, which opens up opportunities for spot sales.
Q: Can you make any comments on M&A, particularly recent media articles about AG Group?
A: We are interested in market consolidation where it makes sense and can deliver real value, but we will be disciplined. We have a good track record on M&A, and we will apply the same discipline to future opportunities. We don't need to do M&A, but we will look at opportunities that make sense.
Q: Can you explain why you're setting up a shipping and trading business in the EU, given the expected surplus of refined product in that market?
A: It's a small office we are looking to establish. The shift of the fuel spec in Australia to 10 ppm sulfur in gasoline is significant, and we see Europe playing an increased role in supply. This small presence in Europe, along with our core hub in Singapore and a presence in Houston, will connect the major trading markets and ensure we don't miss opportunities.
Q: Can you comment on the uptime of your EV equipment and utilization rates?
A: Uptime is critical, and we target best-in-class performance at 98-99%. Key factors impacting uptime include environmental factors and communication with chargers. Utilization is around 7% across our network, which is above our expectations at this stage, given that EVs are less than 1% of the fleet.
Q: Can you expand on the MOU with GrainCorp and IFM regarding renewable fuels?
A: The primary focus is on assessing the feasibility of a facility at Lytton, working with IFM and GrainCorp for their capabilities, including feedstock. While the initial focus is on Lytton, we are also considering the broader industry and how technology might evolve. Policy support from the government will be crucial for the viability of this project.
Q: Can you provide more details on the QSR performance and its contribution to total shop revenue and margin?
A: It's too small at the moment to give much data. QSRs are high-margin businesses, and the right offering in the right location performs well. We are testing the offer and building capability, and we need to deliver returns that are materially in excess of a rental arrangement to consider it successful.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
