Equity Research Report

ALD

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Generated on: 24 February 2025, Time: 09:55 GMT

Result Summary

Ampol's FY2024 performance reflected a significant decline from the record levels achieved in prior years, with RCOP EBIT falling 44.8% to $715.2 million and statutory NPAT dropping 77.7% to $122.5 million. The deterioration was primarily driven by challenges in the Fuels & Infrastructure segment, where earnings fell 74.7% to $186.3 million due to compressed refining margins and operational disruptions at the Lytton refinery. Despite these headwinds, the company's retail operations demonstrated resilience, with Convenience Retail EBIT growing slightly to $356.6 million and maintaining strong shop performance with 2.0% sales growth (excluding tobacco) and margin expansion to 37.3%.

The industry landscape continues to evolve rapidly, characterized by structural shifts in both traditional fuel markets and emerging energy solutions. Well-supplied product markets have compressed trading opportunities and refining margins, with the Lytton Refiner Margin falling to US$7.08/bbl from US$12.81/bbl in 2023. However, Ampol's strategic positioning in premium fuel segments and convenience retail has provided some insulation, evidenced by premium fuel mix improvement to 55.4% despite overall volume decline of 3.5%. The company's energy transition initiatives progressed with the expansion of EV charging networks to 144 bays in Australia and 171 bays in New Zealand, while the Ultra Low Sulfur Fuels project reached FID in Q2 2024.

The macroeconomic environment presents significant challenges, with CEO Matt Halliday noting that "cost-of-living pressures appear set to continue." This has manifested in reduced fuel volumes and changing consumer behaviors, though the company's premium positioning strategy has helped maintain margins. Interest rates have materially impacted financing costs, which increased 21% year-over-year, contributing to elevated leverage of 2.6x versus the target range of 2.0-2.5x. However, early signs of improvement are emerging in New Zealand as the rate cycle peaks, with management observing "green shoots of improved trading conditions."

Risk factors remain elevated across multiple dimensions, with operational reliability at Lytton representing the most immediate concern following disruptions that impacted earnings by approximately $140 million in 2024. Balance sheet pressure persists with leverage above target, though management expects normalization through 2025. Energy transition execution risk continues to grow in importance, requiring precise timing of investments against market evolution. As Chairman Steven Gregg noted, "Our investment will always be disciplined with a focus on shareholder value and returns," highlighting the delicate balance between maintaining current operations and funding future growth.

Near-term outlook suggests continued earnings volatility as the company navigates global market uncertainty and operational recovery at Lytton, though recent repairs and improving Singapore product cracks provide some optimism. Management's $50 million cost reduction program is expected to deliver benefits in 2025, while the completion of the ULSF project by end-2025 should enable premium pricing opportunities. Looking further ahead, Ampol's integrated model and strategic infrastructure positions provide flexibility to adapt to evolving market conditions, with the company's Chairman emphasizing that "our strategy will continue to guide us into 2025 and beyond."

Outlook & Market Conditions

Ampol's recent performance reflects a challenging operating environment, with FY2024 RCOP EBIT declining 44.8% to $715.2 million. Management has not provided specific earnings guidance but has outlined several key factors shaping the outlook. The Lytton refinery has returned to normal operations following completion of necessary repairs, which should benefit F&I Australia through lower product supply costs and reduced demurrage expenses. The retail business continues to demonstrate resilience through its premium positioning strategy, though volume pressures persist from cost-of-living constraints. Management expects the $50 million cost reduction program to deliver benefits in 2025, while operating expenditure in Energy Solutions is anticipated to moderate following peak investment in 2024. The Ultra Low Sulfur Fuels project remains on track for completion by end-2025, with management expressing confidence in achieving premium pricing for the new specification product over time.

Market expectations are likely to remain cautious in the near term, given the uncertain global environment and ongoing pressure on refining margins. The January 2024 Lytton Refiner Margin of US$6.31/bbl, while above December levels, remains below historical averages due to lagging crude premiums and compressed freight differentials. However, recent strengthening in Singapore product cracks by approximately US$2/bbl during February suggests potential for gradual improvement. Consensus estimates may need to factor in both the benefits of operational improvements at Lytton and the continuing challenges in international trading markets. The company's leverage position (2.6x versus 2.0-2.5x target) could also influence market sentiment, though management has articulated a clear path to normalization through 2025.

The operating environment presents a mixed picture across key markets and business segments. In Australia, the retail sector faces ongoing consumer pressure but continues to demonstrate pricing power through premium fuel mix improvement and shop performance. The New Zealand market is showing early signs of improvement as the interest rate cycle peaks, potentially supporting better trading conditions. Global market dynamics have introduced additional uncertainty through political tensions and trade policy speculation, though management believes Ampol's integrated model provides flexibility to navigate these challenges. The energy transition continues to accelerate, requiring balanced investment across traditional infrastructure maintenance and future growth initiatives. This environment suggests continued earnings volatility in the near term, with performance increasingly differentiated by execution capability across both core operations and strategic initiatives.

Group Summary

| FY2024 / Dec-24 |

Metric Value (2024) Value (2023) YoY Change
Revenue 34,877.6 37,749.3 -7.6%
RCOP EBITDA 1,199.4 1,755.5 -31.7%
RCOP EBIT 715.2 1,296.6 -44.8%
RCOP NPAT 234.8 740.1 -68.3%
Statutory NPAT 122.5 549.1 -77.7%
EPS (cents) 51.4 230.4 -77.7%
Dividends (cents) 65.0 275.0 -76.4%
Net Debt 2,766.3 2,194.7 +26.0%
Gearing Ratio 43.6% 35.6% +8.0pp
Leverage Ratio 2.6x 1.6x +1.0x
Operating Cash Flow 915.0 1,517.7 -39.7%
Capital Expenditure 660.8 556.6 +18.7%
Convenience Retail EBIT 356.6 354.6 +0.6%
F&I EBIT 186.3 736.5 -74.7%
New Zealand EBIT 231.8 263.5 -12.0%

Group Summary Report

Ampol's FY2024 results reflect a challenging year marked by significant headwinds in its refining and international trading operations, partially offset by resilient retail performance. The company reported RCOP EBIT of $715.2 million, down 44.8% from the previous year, while statutory NPAT declined 77.7% to $122.5 million. This substantial decrease was primarily driven by a deterioration in refining margins, with the Lytton Refiner Margin falling to US$7.08/bbl compared to US$12.81/bbl in 2023, coupled with operational disruptions at the Lytton refinery.

Despite these challenges, Ampol's Convenience Retail business demonstrated strength, growing EBIT slightly to $356.6 million, supported by improved premium fuel mix and shop performance. The New Zealand operations, while experiencing a 12% decline in EBIT to $231.8 million, showed resilience in a difficult economic environment. However, Fuels & Infrastructure earnings were significantly impacted, declining 74.7% to $186.3 million, reflecting both refining challenges and reduced international trading opportunities in a well-supplied market.

The company's balance sheet saw increased pressure with net debt rising 26% to $2,766.3 million, pushing the leverage ratio to 2.6x from 1.6x in the previous year. This was driven by lower earnings combined with continued capital investment of $660.8 million, including strategic projects such as the Ultra Low Sulfur Fuels upgrade at Lytton. Operating cash flow declined 39.7% to $915.0 million, reflecting the lower earnings environment. In response to these conditions, Ampol reduced its total dividend to 65 cents per share, down from 275 cents in the previous year, representing a 66% payout ratio of RCOP NPAT.

Segment Breakdown

| FY2024 / Dec-24 |
| Fuels & Infrastructure |

Metrics Value ($M) YoY Change Strategic Impact
RCOP EBIT 186.3 -74.7% Significant earnings decline
EBITDA 349.1 -61.0% Reduced operational cash generation
Total Sales Volume (BL) 23.5 -2.4% Market share maintained
Lytton Refiner Margin (US$/bbl) 7.08 -44.7% Below historical average
Production Volume (ML) 5,261 -12.0% Operational disruptions

| Convenience Retail |

Metrics Value ($M) YoY Change Strategic Impact
RCOP EBIT 356.6 +0.6% Resilient performance
EBITDA 544.6 +1.2% Margin improvement
Fuel Volume - -3.5% Premium mix offset
Shop Sales Growth (ex-tobacco) - +2.0% Strong execution
Shop Gross Margin 37.3% +0.7pp Category optimization

| New Zealand |

Metrics Value ($M) YoY Change Strategic Impact
RCOP EBIT 231.8 -12.0% Market challenges
EBITDA 351.4 -5.7% Cost management
Fuel Volume - -1.4% Market rationalization
Shop Sales Growth (ex-tobacco) - +3.5% Retail execution
EV Charging Bays 171 - Future positioning

Segment Commentary

Fuels & Infrastructure faced significant headwinds in 2024, with RCOP EBIT declining 74.7% to $186.3 million. This was primarily driven by deteriorating refining margins, with Lytton Refiner Margin falling to US$7.08/bbl, coupled with operational disruptions that impacted production volumes. The segment also experienced reduced trading opportunities in well-supplied international markets, with F&I International EBIT declining to $26.3 million from $138.7 million. Despite these challenges, F&I Australia (ex-Lytton) demonstrated resilience with earnings of $251.6 million, supported by growth in diesel sales through commercial channels. The outlook for 2025 is improving with the completion of necessary repairs at Lytton and the progression of the Ultra Low Sulfur Fuels project, which is expected to enhance future earnings potential through premium pricing opportunities.

Convenience Retail delivered a strong performance in challenging conditions, with RCOP EBIT growing slightly to $356.6 million. The segment successfully executed its premium market positioning strategy, achieving higher fuel margins through an improved premium fuel mix despite overall volume decline of 3.5%. Shop performance remained robust with 2.0% sales growth (excluding tobacco) and margin expansion to 37.3%, driven by effective category management and promotional activities. The segment's strategic focus on network optimization and investment in premium sites, including the completion of M1 flagship locations and commencement of M4 site developments, positions it well for continued growth. The expansion of food service offerings and QSR operations provides additional growth opportunities.

New Zealand operations demonstrated resilience despite challenging economic conditions, with RCOP EBIT reaching $231.8 million. The segment benefited from improved market segmentation, with Z Energy's premium network complemented by effective discount market positioning through the Foodstuffs relationship. Shop sales growth of 3.5% (excluding tobacco) reflected successful retail execution and network improvements, with 58 retail refreshes completed. The segment's energy transition strategy progressed well, with 171 EV charging bays installed across 53 sites. Looking ahead, the focus remains on retail network optimization, continued expansion of EV infrastructure, and leveraging Ampol's integrated supply chain capabilities to maintain competitive advantage in the market.

Management Sentiment Analysis

Time Period Topic Sentiment Direction Supporting Evidence
Q4 2024 Operations Improving "Refinery operating normally" post repairs
Q4 2024 Market Cautious "Uplift in uncertainty due to global political dynamics"
Q4 2024 Strategy Confident "Well placed to navigate changing conditions"
Q4 2024 Financial Stabilizing "Leverage expected to move back into target range"
Q4 2024 Growth Measured "Segmentation strategy" focus in retail

Top 3 risk exposures

  1. Refinery Operational Reliability
    The Lytton refinery's operational reliability represents Ampol's most immediate and significant risk, as demonstrated by the $140 million impact from disruptions in 2024. This internally-driven risk directly affects profitability through lost production, increased maintenance costs, and supply chain disruptions. While recent repairs have addressed immediate issues, the aging infrastructure requires ongoing capital investment and proactive maintenance to prevent future disruptions. The risk is particularly acute given the refinery's strategic importance to Ampol's integrated supply chain and its role in domestic fuel security. Near-term impacts include potential production volatility and maintenance costs, while medium-term consequences involve increasing capital expenditure requirements and potential regulatory pressures around reliability and environmental performance. Management has demonstrated commitment to addressing this risk through recent investments, but sustained focus and capital allocation will be required to maintain operational stability.

  2. Energy Transition Execution
    Ampol faces significant strategic risk in executing its energy transition strategy, particularly in balancing investment timing with market evolution. This hybrid internal/external risk affects long-term competitive positioning and capital allocation decisions. The company has initiated mitigation through EV charging network development (315 bays installed) and renewable fuels exploration, but success requires precise execution in technology selection, investment timing, and market positioning. Near-term impacts primarily involve capital expenditure and operating costs, with limited revenue contribution. Medium-term consequences are more substantial, potentially including stranded assets if transition timing misaligns with market development, or lost market share if investment proves insufficient. Management's measured approach balances transition investment with core business optimization, but execution risk remains high given the transformation's complexity and scale.

  3. Balance Sheet Pressure
    Elevated leverage represents a critical risk to Ampol's strategic flexibility and financial stability. This internal risk, with leverage at 2.6x versus a 2.0-2.5x target range, affects both current operations through higher interest costs (+21% YoY) and future strategic options through reduced investment capacity. The risk is actively managed through operational cash flow optimization and disciplined capital allocation, but remains elevated given ongoing investment requirements for both maintenance and strategic initiatives. Near-term impacts include higher financing costs and reduced financial flexibility, potentially constraining tactical opportunities. Medium-term consequences involve potential limitations on strategic investments in energy transition initiatives and network optimization if deleveraging progress is slower than expected. Management has articulated a clear path to target leverage ranges, but execution depends on operational performance improvement and disciplined capital allocation.

Profit & Loss Metrics

| FY2024 / Dec-24 |

Metric Value (2024) Value (2023) YoY Change
Revenue 34,877.6 37,749.3 -7.6%
Gross Profit 2,454.8 2,926.5 -16.1%
RCOP EBITDA 1,199.4 1,755.5 -31.7%
RCOP EBIT 715.2 1,296.6 -44.8%
Net Finance Costs (337.6) (278.6) +21.2%
RCOP NPAT 234.8 740.1 -68.3%
Statutory NPAT 122.5 549.1 -77.7%
EPS (cents) - Basic 51.4 230.4 -77.7%
Dividends (cents) 65.0 275.0 -76.4%

Balance Sheet Metrics

| FY2024 / Dec-24 |

Metric Value (2024) Value (2023) YoY Change
Total Assets 12,871.1 12,814.1 +0.4%
Net Debt 2,766.3 2,194.7 +26.0%
Total Equity 3,579.9 3,975.9 -10.0%
Working Capital 1,386.3 1,624.6 -14.7%
Property, Plant & Equipment 5,229.1 4,906.3 +6.6%
Intangibles 1,379.4 1,424.5 -3.2%
Gearing Ratio 43.6% 35.6% +8.0pp
Leverage Ratio 2.6x 1.6x +1.0x

Cash Flow Metrics

| FY2024 / Dec-24 |

Metric Value (2024) Value (2023) YoY Change
Operating Cash Flow 915.0 1,517.7 -39.7%
Investing Cash Flow (688.5) (535.6) +28.5%
Financing Cash Flow (405.1) (785.8) -48.4%
Capital Expenditure 660.8 556.6 +18.7%
Free Cash Flow 226.5 982.1 -76.9%
Dividend Payments 571.9 595.6 -4.0%