Fuels retailer Ampol expects buoyant trading conditions – which spurred record annual earnings and a bumper dividend payout to shareholders – to continue in 2023 with refining margins above historic highs and consumers filling up their tanks despite economic pressures.
Ampol chief executive Matt Halliday told The Australian that inflation was a challenge last year but his business – made up of fuel refining and a network of service stations co-located with convenience shops across Australia and New Zealand – was defensive in nature and could sustain belt tightening by the consumer as interest rates march higher.
“We are a relatively defensive business and I think the 2022 result demonstrates that and when we look at how we’ve started 2023 … our Australian fuel volumes are up 19 per cent in January and New Zealand fuel sales at Z Energy are up 28 per cent, so we have had a strong start,” Mr Halliday said.
“Mobility is important to people, especially post-Covid and people need to travel around and from a convenience shop point of view those items are relatively low value, if you like, and so tend to be relatively defensive.”
Global trends also were bullish in terms of demand for aviation fuel moving in the company’s favour as international travel resumed. The reopening of the Chinese economy should start to see its exported fuels now redirected domestically which should help bring back an equilibrium of supply and demand to bolster margins for the sector.
Ampol unveiled a record full- year net profit of $727.5m, up 39.6 per cent, as revenue spiked 84.3 per cent to $38.49bn. Earnings of $1.316bn, up 124 per cent, were also at a record high.
Ampol said its Lytton refinery in Brisbane realised an $US18.40 ($26.60) per barrel of refined product refiner margin in January, which is much higher than historic averages and well above consensus forecasts of $US13 per barrel in 2023, indicating a likely need for consensus upgrades by the market.
The bullish outlook helped fuel a rally in the share price as Ampol shares raced to a five- month high and later closed up 54c, or 1.7 per cent, at $32.21.
Mr Halliday said historically high refining margins converted to earnings through reliable operating performance and the company also witnessed its best convenience retail earnings in five years, up 37 per cent compared to 2021. Earnings for its convenience retail fuel stations hit $347.2m for 2022, up from $253.7m in 2021.
Eight months of trading from its recently acquired New Zealand business Z Energy contributed $124.6m in earnings to the Ampol group result and 2.76bn litres of total fuel sales volume.
A final settlement with the ATO was also struck over the local tax treatment of earnings by Ampol’s Singapore hub. Ampol will pay a further $5.6m in tax on earnings between 2014 and 2021 and $48.2m on tax for 2022.
It will also write back excess current tax liabilities and deferred tax assets recognised between 2014 and 2022 in accounting for the full amount in dispute, with this write-back resulting in a one-off benefit to corporate tax expense in 2022 of $110.2m, recognised as a significant item.
Ampol had decided to reward shareholders on the record performance. It declared a final ordinary dividend of $1.05 per share, payable on March 30, and more than double the final dividend of 41c paid last year. It takes the full year ordinary dividends of $2.25 per share, fully franked, representing a 70 per cent payout ratio for the full year.
Underlining its operational strength, Ampol also declared an additional special dividend of 50c per share, taking total dividends to $2.75 per share, fully franked.
“The balance sheet now is in incredibly good shape,” Mr Halliday said. “The (dividend) returns that have been provided reflect the strength of the business, the strength of the performance and the strength of the balance sheet.”
Barrenjoey head of energy Dale Koenders said the shift towards incremental returns, higher refining margins for longer and a greater commitment to return capital indicated “a new stage in the Ampol story”.
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 after being battered by the Covid crisis, and following ExxonMobil’s move to close its Altona refinery and BP’s decision to cease production at Kwinana in Perth.
Fears have been growing the nation’s refining sector could disappear entirely in the face of falling demand brought on by the pandemic and competition from far larger refineries in Asia.
Consumers may have paid an extra 1c a litre for petrol if all refineries were to close in Australia, government modelling at the time showed.
Extracted from The Australian