Ampol Limited (ALD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ampol Limited 1H 2021 Results Announcement. [Operator Instructions] I would now like to hand the conference over to Matt Halliday, Managing Director and CEO. Please go ahead.

Good morning. My name is Matt Halliday. I'm the Managing Director and CEO of Ampol Limited. Welcome to our half year 2021 results call. You'll have seen this morning that we have announced that we have submitted a nonbinding indicative proposal to acquire Z Energy in New Zealand. I'd like to make a few comments regarding that potential acquisition before I provide an overview of our performance for the half. I'm joined by our new CFO, Greg Barnes, who will discuss the financial results in more detail. Following the presentation, we will take questions on the proposed acquisition and the results. Given the current Sydney lockdown, we also have Joanne Taylor, EGM of Retail, Brand and Culture; Brent Merrick, EGM, Commercial; and Andrew Brewer, EGM, Infrastructure, who are joining us remotely on the call today. Starting with the proposed acquisition summary on Slide 3. After a period of confidential discussions, Ampol has submitted a nonbinding offer of NZD 3.78 per share to acquire 100% of Z Energy. The Board of Z Energy have determined that it is in the best interest of its shareholders to grant Ampol a 4-week period of exclusive confirmatory due diligence and to agree terms of a scheme of arrangement. The acquisition is subject to a number of conditions precedent, including the approval of the boards of both Ampol and Z Energy, a vote by Z Energy shareholders and New Zealand High Court approval. We also expect the acquisition to require approvals and clearance from New Zealand's Competition -- Commerce Commission, rather, and the Overseas Investment Office. We are confident of receiving the necessary regulatory approvals, including through the divestments that are necessary and are expected to occur within a prescribed time following completion. We proposed to fund the acquisition through a combination of proceeds of new debt, recognizing the considerable balance sheet capacity we have available as well as through divestments and an equity issuance in the order of AUD 600 million. While there is no guarantee that any transaction will occur, the timing and final sizing of any equity issuance will be determined closer to the transaction completion date and could be in the form of a partial issuance to Z's shareholders. As outlined on Slide 4, the acquisition of Z Energy is a logical growth opportunity for Ampol. It is consistent with our strategy to expand our international operations and leverage our capabilities and trading and shipping footprint across the region more broadly. Both companies are leaders in their respective markets with trusted iconic brands and very similar business models. Ampol has a strong record of reliably delivering transport fuels and investing in New Zealand, and this acquisition will create a Trans-Tasman leader in fuels with significant regional scale through the addition of a further 3 billion to 4 billion liters per annum to the Ampol integrated supply chain. We will bring deep supply chain and convenience retail experience to deliver considerable benefits in New Zealand, including in the areas of fuel security, support for industry and future energy transition. As we enter the due diligence phase, we will remain financially disciplined to ensure we maximize value for our shareholders. As I said before, there is no guarantee that a transaction will complete, and we'll keep you updated as the transaction progresses. We'll take questions on the proposal shortly, but now I would like to turn to the presentation of our half year results. Safety always comes first at Ampol. So turning to our safety performance on Slide 5. I'm pleased to say we have continued to see improvement in personal safety in both Fuels & Infrastructure and Convenience Retail, and this is no accident. It's through a continual focus on targeted improvement plans like having our leaders in the field and programs to address well-being and traffic management. And it's not just our own employees, we are collaborating with our contracting partners to ensure we operate safely right across our business. In terms of process safety, we haven't had a tier 1 incident since 2018. That's a great achievement, but there's certainly no room for complacency. Disappointingly, high workforce turnover at third-party carriers, who transport fuel on our behalf, has seen an increase in spills above the historical average. We do have a comprehensive plan in place that is being executed in partnership with our carriers to get back to the performance level that we expect. And with a significant proportion of the country in lockdown, our focus on COVID-19 safe operations for our people and our customers continues to be a primary focus for our operations teams across the entire business. Turning to the highlights now of our performance for the half on Slide 6. The first half of 2021 has been a pivotal time for Ampol. Our focus on execution of our strategy has delivered significantly improved financial performance and sets us up for a promising future over the medium term. We saw a strong recovery in group profitability, demonstrating the resilience of the business and its operating leverage to market recovery. Fuels & Infrastructure's improved earnings were underpinned by the Lytton refinery performance and strong volume growth from the international operations, while the increase in earnings for Convenience Retail was driven by a recovery in retail fuel volumes and continued improvement in shop performance. Greg will take you through the details of our financial results shortly. We finalized the Lytton review this half with the decision to continue operations underpinned by the federal government's fuel security package. The variable support payment when refiner margins are low while preserving exposure to the upside will help to reduce earnings volatility and, therefore, improve the quality of Ampol's earnings going forward. This has given us real confidence, as reflected in the increase in targeted leverage range to between 2x and 2.5x, providing additional balance sheet flexibility, including the capacity to pursue growth opportunities like the acquisition of Z Energy while maintaining balance sheet strength. The decision to continue operations delivers for all our stakeholders. It maximizes shareholder value; protects hundreds of jobs, both directly and indirectly; and supports the federal government's objectives of fuel security and facilitating an orderly energy transition. We continue to successfully execute our strategy to enhance, expand and evolve. We are on track to deliver our 2024 targets for Convenience Retail EBIT uplift and international growth. The rebrand program is progressing well with 389 stores completed at the end of June. We've been benchmarking newly branded sites against the pool of comparable sites yet to be rebranded. The results have been very encouraging with rebranded stores trading in line or ahead of the benchmark. And we launched our Future Energy and Decarbonization strategy to continue to evolve our offerings with our customers as they seek lower-carbon solutions. This includes our plan to roll out fast-charging bays to about 100 sites across our national retail network by September 2023, with the support from an ARENA Future Fuels Fund grant. We were also able to continue delivering on our commitment to release franking credits to our shareholders with a $300 million off-market buyback completed in January and the payment of the final dividend in respect of the 2020 financial year. The balance sheet is strong, and the medium-term outlook is positive. So today, we are announcing an interim ordinary dividend of $0.52 per share fully franked. Combined, we will have released more than $200 million in franking credits this year alone. Turning to Slide 7 now. While Australian fuel demand has recovered from the worst of the pandemic in 2020, localized COVID-19 lockdowns continued, impacting fuel demand. Domestic and international border restrictions remained in place, and as a result, Australian jet fuel demand is still well below pre-COVID levels. For Ampol, the first half of 2021 saw double-digit growth in fuel sales, driven by strong international sales growth, but F&I Australia wholesale volumes were down due largely to the BP contract expiring and BP making other arrangements in Brisbane. The full half impact of border restrictions on jet fuel demand also impacted comparisons for the half. Convenience Retail fuel volumes grew by 3% despite the network reductions, driven by double-digit headline growth in the second quarter compared with the national lockdown last year. You can see from the chart on Slide 8 that we are making excellent progress on the EBIT uplift target. A further $8 million was delivered towards the international growth target, mainly due to strong growth from Gull in New Zealand. The Convenience Retail nonfuel EBIT uplift target benefited from the continued growth in shop sales in the first half with an ongoing focus on range to drive margin and embedding improvements in labor utilization and other site costs, particularly with the transition to company operations now virtually complete. Our focus for the remainder of the year will be to try to maintain these improvements, particularly given the impact that the extended lockdowns across the country are having on shop sales. We are now on Slide 9. Our rebrand program accelerated through the half, reaching up to 100 stores per month before the Greater Sydney lockdown, with nearly 400 sites rebranded by the end of June. Our retail and B2B customers are responding very positively to the return of the iconic Ampol brand. Total transactions, fuel volume and shop sales KPIs are in line to slightly up post transition. Amplify fuels are also maintaining their appeal with our premium fuel customers. And we are on track to complete the rollout of AmpolCard by the end of October. Slide 10 outlines the 4 pillars of our sustainability strategy. We have made solid progress this year. A few highlights include the release of our future energy and decarbonization strategy, which includes our ambition to achieve net-zero carbon emissions from operations by 2040. The Ampol All Rounder program has seen participation grow to approximately 1,900 schools, and we further established our flagship partnership with The Smith Family. This includes the employee volunteering program and the winter fundraising appeal across our retail network, which recently raised $335,000, an outstanding achievement. I'll now hand over to Greg Barnes, our new CFO, to take you through the details of the group and segment results.

Thank you, Matt, and good morning, everyone. So we'll just turn to Slide 12. As Matt outlined, we saw a strong recovery in group profitability in the half. Group RCOP EBIT was $340 million, up more than 50% on the first half last year. This was due to the improved Lytton refining earnings, good progress in relation to our EBIT uplift strategies and the relative impact of COVID-19 on each period. Our RCOP NPAT is the highest first half performance since 2018 and represents 97% of the full year earnings for 2020. This demonstrates the significant operational leverage of the business, including as lockdown restrictions ease. On a historic cost basis, the group reported an NPAT of $326 million compared to a loss of $626 million for the same time last year. Beyond the uplift in RCOP earnings, the result was supported by inventory gains and a material reduction in significant items. Fuels & Infrastructure delivered total RCOP EBIT of $208 million, that's up 85% from the first half of 2020, while Convenience Retail delivered total EBIT of $149 million, up 20% from the same time last year. So I'll take you through a few of the details of each result over the next few slides. On Slide 13, you'll see key contributions to improvement in group EBIT for the half, and it really highlights the significant contribution from the Lytton refinery during the period. As expected, F&I, ex Lytton, earnings reduced modestly during the period. Essentially, as Lytton returned to normal operations, our imports of refined product reduced, impacting the benefit that the additional scale had provided to our local trading operations. That said, as the chart demonstrates, having the refinery back in operation was a net positive to group earnings for the period. Convenience Retail earnings grew $24 million during the period, which I'm going to talk to in a moment. On Slide 14, we'll look into the F&I result. In presenting F&I earnings, we decided to remove the impacts of FX from each period, which hopefully makes it easier for you to assess and compare performance against your own modeling and assumptions. As you can see, EBIT increased by $100 million. The refining contribution, combined with the temporary refining production payment, or the TRPP, are the 2 significant improvements during the period. I spoke to the F&I volume impact earlier, and you can see the impact of earnings here from the combination of the change buy-sell arrangements, the full half impact of jet volumes and the trading impact of reduced imports year-on-year. The international business was up $8 million year-on-year with our international trading business and Gull both performing well. Slide 15 shows the drivers of the Lytton refinery result. U.S. dollar refiner margins improved to USD 5.90 per barrel from USD 4.86 per barrel in the first half of 2020, improving earnings by $36 million. The higher Australian dollar partially offset the benefit of the improved U.S. dollar margins by $18 million. Lytton production increased to 3 billion liters in the half from 2 billion liters in the prior corresponding period when the refinery was shut down in May and June. Increased production contributed $55 million to the earnings uplift during the period. Lytton returned to profit during the period with an EBIT of $9 million, which, when coupled with the TRPP, resulted in an overall RCOP EBIT for Lytton of $49 million. On Slide 16, we'll have a look at Convenience Retail. The relative balance of our retail fuel mix between petrol and diesel is generally a strength of this business and supported the 3% growth in retail fuel volumes during the period. It did, however, increase our exposure to weaker diesel margins this half. Essentially, while falling crude costs were supportive of margin expansion last year, the converse was true in the first half of 2021 when the market was slow to pass through rapidly rising crude costs to [indiscernible] prices. Shop contribution rose by $23 million, and the business benefited from a particularly strong March, April and May, prior to the COVID restrictions being reintroduced. This bodes well for post-lockdown demand. The transition of franchise stores into our wholly owned network continued to deliver benefits in the shop contribution level as well as by efficiency gains in the cost of doing business where we reduced our cost by $6 million. The next 3 bars on the waterfall relate to items from the first half of 2020 that did not repeat in this half. This includes $15 million for the dry stock inventory write-down and other one-off expenses and $12 million for gains and losses on asset sales and P&E (sic) [ PP&E ] write-offs. The impairment recognized at the 30th of June 2020 delivered a $14 million depreciation reduction to this half. Turning now to our balance sheet and cash flow on Slide 17. Net borrowings increased by $301 million, primarily due to the off-market buyback conducted during the half. Operating cash flows of $208 million included around $400 million in increased working capital during the period, almost entirely driven by rising crude and product prices as well as the accrual of the TRPP payable in the second half. On Slide 18, we've had a relatively light period of capital spend in the first half with total spend of $85 million, including $28 million on the rebranding program. We do expect spend to increase in the second half, largely on the back of increased rebranding activity, the Woolworths Metro rollouts and the Lytton T&I. Our full year CapEx guidance is unchanged but is expected to -- is subject to our ability to access sites and labor, given the restrictions in place across our key markets. Today, we announced an interim dividend of $0.52 per share, more than double the dividend for the same period last year. The dividend represents a payout ratio of 61% of first half '21 RCOP NPAT and is in the middle of our stated dividend payout range. Earlier in the year, we returned $300 million to shareholders by way of an off-market share buyback. In doing so, we repurchased 4.6% of issued capital at $26.34 per share, returning $190 million of franking credits to shareholders. Looking ahead, we maintain a strong balance sheet and remain confident in the underlying strength of the Ampol business. This gives us flexibility to explore growth opportunities such as the potential acquisition of Z Energy relative to other capital management and alternatives. As the chart shows, we have a track record of returning surplus capital and franking credits to shareholders within our capital allocation framework, and our dividend policy remains unchanged. So while it's appropriate to hit the pause button on additional capital management while we work through this transaction, it remains a key focus for us, and off-market buybacks remain our preferred mechanism where available. Thank you. I'm going to hand back to Matt and come back to questions at the end.

Thanks very much, Greg. Moving to Slide 20. We have a clear set of priorities in 2021 to deliver value for our shareholders. Our plans to bring Ampol back are on track, and in fact, the results are pretty encouraging so far. The Lytton refinery review was completed with the decision to continue operations, and this is a positive outcome for our stakeholders, maximizing shareholder value and derisking the group's earnings. We continue to assess opportunities to improve returns from F&I Australia, including from the competitive advantage the minimum stockholding obligation affords the local refiners and those with inherent infrastructure strength like Ampol. And the previously announced transition to Mobil lubricants is well underway. Our focus on earnings growth and cost efficiency remains. I spoke earlier about the good progress we are making towards achieving our $195 million EBIT uplift target by 2024. Leading into the half, we have made significant progress in our strategy to improve our network and maximize the value of the portfolio. We continue to look for opportunities to optimize the network, consistent with the approach focusing on value over volume with 8 sites closed and 5 new-to-industry sites proposed for completion in 2021. We are also progressing the redevelopment process for the 4 existing large-scale highway service centers at Eastern Creek and Pheasants Nest in New South Wales. Finally, we remain committed to returning surplus capital to shareholders and releasing franking credits with more than $200 million released so far this year, including through the fully franked dividend we have announced today. Moving to Slide 21. I would like to provide a brief update on current market conditions and the outlook. Since June, extended COVID-19 lockdowns across the country have impacted mobility, reducing fuel demand and negatively impacting shop performance. Convenience Retail fuel sales were down 15% overall in July and down 18% through to the 15th of August compared with the same time last year. Gasoline demand has been most impacted with diesel demand remaining more resilient. Australian wholesale volumes have performed relatively well, up 2% for July. Changes in consumer behavior during the current lockdown is reversing some of the good momentum from the first half. Shop sales were down 16% in July and 17% to 15 August compared to the prior corresponding periods, clearly being impacted by the lockdowns we are seeing. We are seeing some partial offset to the volume weakness as LRM for July was in the range of the average of the second quarter, and retail diesel margins, in particular, are improving. And while the fuel security service payment will reduce earnings risk at Lytton when refiner margins are low, the impact of sustained COVID-19 lockdowns on inventory and production levels will continue to be monitored. Looking beyond the current near-term headwinds, the market has demonstrated that demand and sales recover quickly when restrictions ease. And the bias to company-operated retail model, in addition to import earnings, provides significant operating leverage for Ampol when volumes recover. Refiner product cracks, while inherently difficult to predict, have begun to show some positive signs with international fuel demand strengthening and China imposing stricter export quotas. In the medium-term, vaccination rates and the easing of COVID-19 restrictions, combined with the continued execution of our strategies, including the potential acquisition of Z Energy, should provide very positive earnings momentum for the medium term, and we remain very optimistic about the future for Ampol. Thank you for your time today. Before we take questions, I'd like to note that Ampol is limited in what we can say about the proposed acquisition of Z Energy at this point to what was announced to the ASX this morning. We'd ask that you refrain from asking questions that relate to Z Energy's business specifically or which go well beyond anything that we've covered in the ASX release. And certainly, I would appreciate your understanding in that regard. And just a reminder that we also have Brent, Jo and Andrew on the line to answer questions relating to their businesses. With that, we'll take our first question, please.

[Operator Instructions] The first question today comes from Michael Simotas from Jefferies.

And welcome, Greg. The first one for me, I was just hoping you could give us some help with the rationale for the Z Energy deal or the proposed Z Energy deal. The multiple that you've proposed is obviously higher than Ampol's trading multiple. Looks like you're likely to need to divest Gull. Can you give us some sense of how much synergy is available? I mean I presume there's some in terms of head office costs, but the real bucket will be what you can earn on trading and shipping volumes. Is there any help you could give us there? And then maybe related to that, do you think you'll be able to hold on to supply to Gull if and when you do sell the business?

Yes. Michael, look, there's only so much we can say at this point, as I said. Look, the rationale for the deal is that we have highly compatible business models, obviously, New Zealand shifting to a full import model where we can leverage our trading and shipping expertise, and we certainly expect to see synergies there. And we have experience in the evolution of the market as that transition occurs. So we certainly see some synergies there in addition to the cost side, as you point out. It's a market that we know and understand well, and we believe that setting up a Trans-Tasman leader in fuels with greater scale is going to be a strong footprint from which we can extract value.

All right. And then the second one for me, just on the outlook. I guess nothing in there is too surprising, given the impact of COVID, except perhaps the performance of the Z stores. It seems to be a very different dynamic to what we saw through COVID last time with the shop decline basically in line with volume. So there doesn't seem to be any offset from localized shopping. Is there anything you can sort of talk to there? Should we be comfortable that it's just different shopping behavior? Or is there something different happening in the business this time around?

Yes. I might start and then pass over to Jo, Michael. But I think the first thing I would say is that if you recall back to 2020, it was really in the second half of May and June as the country came out of lockdowns that we started to see the strong recovery in shop sales. Obviously, now we're in a -- in terms of the comparative period, we're in a messy sort of lockdown-impacted sort of current period. So it is a difficult comp to make. But we've seen 6.1% like-for-like shop sales growth. That's encouraging. But the lack of mobility that we're seeing at the moment with the lockdowns -- strict lockdowns in place across the 2 large cities are having an impact, as you would expect. And there's no JobKeeper in the system to the same extent, which I think is a feature of the changing or the adjusted consumer behavior that we've seen in this half to date. But I might pass to Jo to build on that.

Thank you, Matt, and good morning, everyone. Just to build on that comment, I think important to remember the timing disparity. So last year, when the country did go into lockdowns, it was most significantly experienced in April of last year. As we ventured into the June, July, and then August period was when we actually saw considerable growth in the shop. So it's effectively a year-on-year comp to quite a strong performance last year. So as Matt touched on, we are now in the height of mobility restrictions, particularly Sydney and Melbourne and the lockdowns of the sporadic nature in the other states. And it's in that immediate period when those movements are restricted we see the impact on volumes in shop but confident with the capability that we have and when we see from our performance to date that when movement does occur again that we will be able to benefit from those shopping patterns. Thank you.

So last year, shop sales were tracking pretty close to the volumes where they -- we just couldn't see it, given the timing difference.

Sorry, Michael, say that once again...

So last year, if we look at April where mobility was heavily impacted, shop sales were similarly impacted, and it's just couldn't we see it because of the timing was wrapped up in quarters and halves rather than individual months, is what you...

Yes. And April was definitely a very tough period for us last year because [ it's where it needs to, ] where there was very much no movement across the whole country. But yes, you are seeing a similar behavior, when people are simply not moving, we're seeing that impact in both fuel and shop.

The next question comes from David Errington from Bank of America.

Matt, this is a question very broad. I don't want to sort my experience with large chunky acquisitions, generally public takeovers where you pay a premium for goodwill or whatever you pay. It's difficult to generate an acceptable return. I mean my experiences, acquisitions, public acquisitions, your returns seem to go backwards. For a period of time, you tend to have to pay up the synergies. And so consequently, it is quite a difficult process to generate shareholder value when you do public company acquisitions. And the history shows that. I mean most people say that, I don't know, there's studies done that only a very small percentage of public acquisitions create shareholder value. Can I provide you with the platform as to why you're a CEO that seems to be very shareholder return focused, why an acquisition like this where you're basically highlighting the synergies on the F&I side, volume, scale, how that's going to create shareholder value for the shareholders? Can you provide a platform as to why we as the shareholder side should back you into, Matt, saying why this acquisition will create shareholder value other than just conceptual scale, et cetera, et cetera? Can you do that for us, please? Because I think that's a very important tone to set going forward where most people might have been expecting more capital returns as opposed to a large, chunky acquisition.

Yes. Sure, David. Thank you for the question. Look, I acknowledge your points, and we have done very considerable work around value and ensuring that we believe the returns are there through this acquisition, as you would expect. And we benchmark ourselves against capital returns when we do that work, as you would also expect. What we see in the Z opportunity is a highly compatible business to the one that we are operating. It is a market that we know and understand very well. It's a market leader in that market with a very strong underlying asset and market position. It is also a market that is undergoing very considerable transformation as the refinery closes, and it shifts to a full import market. When we look at that and we look at the value that we can bring to that business, we are going to be very disciplined about it, as you would expect. But we are also very confident that the compatibility and the nature of the market and the evolution of that market is very consistent with our skills and experience, and we can leverage not only our scale but those skills and experience to extract the right level of value from this acquisition. So that's how we're thinking about it. Of course, as I mentioned, we'll continue to be disciplined as we move through this next phase.

Can we take it just down one level, and I'll leave it at this point. So we take it down one level and identify some examples as to how this can bring value, like extra volume here or there or whatever you think, so we can have a bit of substance, if you like. Not being rude, but we can get our teeth into what it is other than just bringing value through evolution and skills and experience in that. Can you give us some substance as to what areas would you actually do? Just as a couple of examples. Can you do that for us?

Yes. Sure. So I think when you have greater flows -- if I start with the short, when you have greater flows in the region, which, obviously, this brings greater flows into our overall integrated supply chain, there is additional value that we will be able to create, leveraging the capability that we have in Singapore through our trading and shipping business in adding value to what is the inherent value of that short position. The wholesale market will also evolve as the refinery closes, and we've been through this exercise in Sydney, and we understand very well how best to create value through that market evolution. The wholesale market will transition, and we can be an important part of extracting value through that as we look to leverage the experience in addition to the cost synergies that you would expect through 2 -- through combining 2 highly compatible businesses. So hopefully, there are a few examples. I don't think it's productive for me to go a lot deeper than that, given we're about to undertake our due diligence. And obviously, we'll continue to work through that question through that exercise.

Yes. Does that help? Can you move volumes? Is that going to be helpful having Lytton? Or -- and I'll finish on that.

I think Lytton, with the arrangement that we have in place, is a very important part of our integrated supply chain. We have removed downside, but we have a lot of flexibility through Lytton around blending, around high-octane gasoline that we leverage across the eastern seaboard of Australia at the moment and the infrastructure that we have, and combining New Zealand into that system is all part of how we can extract more value than others from that short position that will grow in New Zealand over the coming couple of years.

The next question comes from Mark Samter from MST.

Yes. I've got a couple of questions, and I'm going to try asking the same question a different way, Matt, because not [indiscernible] method in the sense, but I think it's a fantastic deal, and it feels like people are missing the nuance. I mean I guess we take as an example, when BP thought they were buying Woolworths, we could use a ruler and you could back out their presentations, which look like they said midstream, that deal was going to be worth $1.75 to $0.02 a liter for them. In Australia, you probably argue there maybe short spot more since one of [indiscernible], whatever that was. Do you think -- and obviously, answer this from a Gull perspective, not a Z perspective, do you think that there's anything wildly different in New Zealand market why you could extract less value from the short-term New Zealand than you could from Australia?

Yes. Look, Mike, I think I can't -- I don't want to, at this point, go into it too much. But yes, we clearly see value in the short in the region. I think we've seen it over the past couple of years in a range of corporate activities the short has considerable value. We're well placed to be able to extract that value. It has inherent value in a long region, but it also has greater value, the more you can couple it with a ratable -- a highly ratable position, which the Gull and Z businesses have and underlying strength of infrastructure position. And I think it's -- when we look at that combination of things, obviously, we see it as a valuable part of this potential acquisition. And clearly, we understand how to leverage the short through the Gull business today.

Yes. Okay. And so I guess on that base, I think [indiscernible] your preference would be to keep the supply to Gull. I mean I guess I look at Z and not totally convinced them. There might not be some interlopers bidding against you, given the value of the short, but your desire would be to keep the volumes with Gull as well?

Yes, that would be our desire. Obviously, we've got to work our way through the process from here, and there's a long way to go, but that would be our desire.

Okay. And just changing topics completely. With the retail strategy, is there any updates on particularly plans with metro and plans with the noncore sites, and that's -- lost track of where we have with how many sites there noncore now. But any further to finalization of what we think the future shape of retail looks like?

Yes. So we continue to roll out the retail -- the metro sites on retail. I think there were 4 this year, and we'll have another 16 that will be rolled out in the second half. And they're generating some encouraging results. It was at our Neutral Bay site over the weekend, which is just being rolled out. And I think the sites are looking fantastic, together with the Ampol rebrand and the initial signs and response we've seen has been encouraging. So we'll continue to roll that out and progress our initial rollout phase to 50 sites and then look at where we want to take that further. QSR is an important part of our strategy. We've had a lot on our plate and haven't been able to progress that very significantly in the last year or so, but you'll be hearing more from us on that front. And we said when we completed the network review, there were sort of -- I think it was around about 100 sites that over time, we would look to either divest or close, and that will just happen as leases roll. They are small-volume sites, and leases will roll or we confront an investment decision in tanks, principally, and they will exit the network or find their way into the wholesale business.

The next question comes from Grant Saligari from Credit Suisse.

I'd just like to ask a couple of questions about the result itself. Just the first one. On the international business, the average margin declined year-on-year. Can you just elaborate on that, please?

Yes. So different market conditions that we saw between half 1 and half 2, clearly, there was an impact around volume where -- when the refinery closed in May last year for the shutdown. There was a volume impact where -- that we benefited from in the first half last year. But a more choppy -- a choppier market, I would say, in the first half of last year also gave rise to greater margin and trading optionality. But I might hand over to Brent to build on that.

Yes. Thanks, Matt, and thanks for the question, Grant. Yes, you've covered it well there, Matt. The reality is that there's a number of different ways we participated in the market internationally. We've also got a very stable sort of Gull and field businesses. And then we have called out that we've grown from some term business into end customers in the region as well, which is working well for us. But this year has been big, as you can imagine, in a long-haul market quite challenging for people to drive value for the business when there is a overhanging product. So on top of our very clear strategy around growing internationally around product geography and customer, they're just working really hard to extract value when they can and in some short-term spot market. That means a small margin, larger volume. So that's what's led to that growth providing market conditions ultimately.

So just to clarify, the -- was there a stability in terms of the margin into the Philippines and the SEAOIL and into Gull, which are sort of the base of that business? And with the volatility, I guess, year-on-year around the incremental volume that you described is, I think, more [indiscernible] term business for that? But I'm just trying to understand that you're going down a road where there's more -- going to be more volatility in that international EBIT.