Ampol Limited (ALD) Earnings Call Transcript & Summary

Thank you, [ Hany ]. Good afternoon, ladies and gentlemen. As Hany said, my name is Fran Van Reyk. I'm the Head of Investor Relations for Ampol Limited. Before we commence, I'll draw your attention to the important notice on Slide 2 of the materials launched with the ASX this morning. This presentation will refer to certain financial information relating to Z Energy, its subsidiaries and its interest in associates and jointly controlled operations, which has been derived from Z Energy's audited financial statements for the year ended March 31, 2021, disclosed to the NZX on the 6th of May 2021, which we're calling Z Energy information. Ampol has not prepared or independently verified and is not responsible for the Z Energy information. Today, our Managing Director and CEO, Matt Halliday; and CFO, Greg Barnes, will provide some prepared comments and take your questions. Brent Merrick, AGM, with responsibility for international and new business, is also available to answer questions. I'll now hand over the call to Matt to commence today's proceeding.

Great. Thanks very much, Fran. Good afternoon, everyone. My name is Matt Halliday. I'm the Managing Director and CEO of Ampol Limited. Welcome to our analyst and investor call to discuss our acquisition of Z Energy and their announcements to the ASX this morning. I'm joined by our CFO, Greg Barnes, who will share some of the financial aspects of the transaction. And as Fran said, following the presentation, we look forward to taking your questions. Following a period of confirmatory due diligence, I am very pleased to announce that Ampol has entered into a binding scheme implementation agreement to acquire 100% of the shares of Z Energy Limited. And today, I would like to share with you some of the details surrounding the transaction. So starting with the acquisition highlights covered on Slide 4, Z Energy is a logical growth opportunity for Ampol, consistent with our international growth strategy. It's a very similar business to Ampol that holds a leadership position and an iconic brand in the markets in which it operates. So this acquisition presents a unique opportunity for Ampol to acquire the market leader in New Zealand with approximately 40% fuel sales market share. Our combination will create a Trans-Tasman fuel champion with significant scale and reach that will help support New Zealand's fuel security goals as they transition to a full fuel import market. It also represents compelling financial returns for Ampol shareholders. We anticipate significant earnings upside from synergies and the transition benefits in the order of NZD 60 million to NZD 80 million largely from fuel procurement and overhead cost reductions, with a view to then targeting a range of other opportunities across the value chain. We anticipate double-digit EPS accretion and, importantly, a greater than 20% free cash flow accretion in calendar 2023. But we are not just looking to the near term as part of this deal. We are looking to the future, a future where our customers across both Australia and New Zealand will be transitioning to low emissions energy solutions, and the combination of Ampol and Z Energy will create a stronger platform for development of new low-emission solutions for our customers over time. If I move now to Slide 5. The key terms of the SIA are outlined here, and I'll just touch on a few key points. The cash offer price has been reconfirmed at NZD 3.78 per share, maintaining our commitment to be financially disciplined and to maximize value for our shareholders. This offer also represents a compelling value proposition for Z shareholders at a significant premium to the undisturbed price. Ampol has also agreed to Z Energy paying a permitted dividend of NZD 0.05 per share with respect to the now closed half year ended September 30 2021. In addition, and as outlined in our announcement of August 23, 2021, the offer includes a per day dividend adjustment mechanism should the transaction extends beyond March 31 2021, up to a maximum of NZD 0.10. The SIA also includes deal protection mechanisms and conditions precedent that are customary for a transaction of this nature. And as part of obtaining New Zealand Commerce Commission approval, Ampol has committed to divesting Gull in its entirety within a period yet to be defined. Turning now to the strategic rationale on Slide 11. This slide shows the key aspects of the transaction that provide an overview of the strong strategic rationale to proceed. I'll take you through a few of these now, noting the full details are covered in the announcement lodged with the ASX this morning. So moving on to Slide 12. The combination of the market leaders in Australia and New Zealand, both with iconic local brands, will create the #1 Trans-Tasman fuel player with approximately 2,400 fuel sites and a demand pool of at least 23 billion liters of fuel annually, underpinned by strong import terminal and distribution network infrastructure. We anticipate a light touch integration with Z Energy to transition to a regional subsidiary with its own management team and retaining the Z brand, but critically, leveraging Ampol's trading and shipping capability and market knowledge of import market transitions. Over the last month, we have been impressed by the skill, knowledge and professionalism of everyone at Z Energy, so the retention of key people is a priority for us. Moving on to Slide 13, which shows how the New Zealand short would combine with Ampol's existing short in the Asia Pacific region of around 15 billion liters. This additional scale linked to Ampol and Z's physically backed system provides opportunities for Ampol's trading and shipping teams in Singapore and Houston to generate incremental earnings. And the flows shown here on the map demonstrate how Ampol's East Coast infrastructure provides a unique opportunity to leverage that additional scale and enhance fuel security for New Zealand. While others can trade this short, we have a unique advantage with the ability to optimize supply to New Zealand off the back of the East Coast of Australia with Sydney's Kurnell Terminal and the Lytton refinery has proven supply points. We have experience supplying into New Zealand via breakbulk of LR2 vessels at Kurnell and through supply from Lytton, which opportunity will expand further following the upgrade of Lytton to 10 ppm sulfur in gasoline in 2023. Moving now to Slide 14. We have remained financially disciplined in agreeing terms for this scheme. The acquisition provides compelling financial returns for Ampol shareholders in the form of double-digit EPS accretion and a free cash flow accretion of more than 20%. Strong cash flow accretion is a particularly important aspect of the transaction with the priority to rapidly deleverage our balance sheet. The estimated annual benefits of NZD 60 million to NZD 80 million comes primarily from the supply chain benefits, as New Zealand transitions to a full import market, which is where Ampol's assets and capabilities will play a crucial role. This also means the integration can be relatively light touch as described and, as such, low risk. Beyond this, we will also work to unlock other earnings opportunities across the value chain, leveraging the similar value chains in place across both geographies. Ampol remains committed to maintaining our investment-grade credit rating and capital management, consistent with the rapid deleveraging remains a priority. Moving on to Slide 17. As we look to the future, the combination of Ampol and Z Energy will strengthen our position to manage the energy transition. The core strengths of iconic brands, scale and reach, combined with supply chain expertise and distribution assets, positions us very well to accelerate the energy transition in an orderly way across both Australia and New Zealand. The quality of the combined distribution infrastructure assets provides optionality to repurpose and adapt them for alternative uses, derisking the longer-term outlook. Z Energy's core capabilities, market and customer positions, when combined with Ampol's, will allow us to create centers of excellence on each side of the Tasman to support the energy transition. For example, Z Energy's leadership around biofuels, including around sustainable aviation fuels, will complement some of the initial steps Ampol is taking in e-mobility, with the rollout of EV charging stations and projects such as battery storage and virtual power plant project in partnership with Tesla as well as hydrogen through the green hydrogen generation trial with Fusion Fuel and the green hydrogen, long-duration storage technology being pursued in partnership with the CSIRO here in Australia. Each of the test-and-learn projects highlight how critical it is to be able to combine customer access, distribution assets and expertise in reliably managing complex and dangerous products in order to deliver low emissions energy solutions for our customers. But combined, Ampol and Z Energy, with that greater scale and capability, but retaining strong local connections to customers, communities and governments is better place to play a key role in enabling the energy transition across both countries. I'll now hand over to Greg to take you through the proposed funding, regulatory considerations and the indicative time line.

Yes. Thanks, Matt. Good afternoon, everybody. As you can see on Slide 19, Ampol has secured new debt facilities that, along with the headroom in existing facilities, will fund the initial transaction. The new facilities have a tenor of 12 months, with an option to extend for a further 12 months. Looking ahead, Ampol expects the final funding mix to be largely debt funded, supported by the divestment of Gull as well as potential new hybrid issue of up to $600 million. The hybrid will be structured to achieve a 50% equity credit. While the final funding mix will be determined after regulatory approvals, we will seek to minimize the requirement for any new equity, taking into account operating conditions at the time and the anticipated strong cash flow accretion from the combined entity. And just to confirm, there will be no script issued to Z shareholders as part of the transaction, as it is entirely a cash funded transaction. If we look at Slide #20. The scheme is subject to a number of conditions precedent, as outlined earlier, including receiving the necessary regulatory approvals. These include obtaining clearance from the NZCC, or the Commerce Commission, and approval from the Overseas Investment Office. We believe the successful completion of this transaction will bring considerable benefits to New Zealand, including to fuel security. We're also considering a secondary listing on the New Zealand Stock Exchange. As Matt said earlier, Ampol is committing to the full divestment of Gull to address potential competition issues and is confident of receiving the necessary regulatory approvals. So on Slide 21, that will just give you some color on the indicative time table that's naturally it's going to be subject to change based on the regulatory approval time line. We are targeting completion in the first half of 2022, and the Z Energy shareholder vote should be in the early part of 2022. So with that, I'll hand back to Matt.

Thanks very much, Greg. So just in concluding, we're very excited today to be able to announce the move into the next phase of our proposed acquisition of Z Energy in New Zealand. I think it's a highly strategic acquisition opportunity for Ampol, quite transformational in many ways in terms of what the combined organization would represent, with compelling financial returns for Ampol shareholders. We have remained financially disciplined, and this is reflected in the offer price being reconfirmed at NZD 3.78 per share. And in addition, agreeing to NZD 0.05 per share dividend in relation to the period of earnings prior to us signing the SIA. We will leverage our balance sheet to fund the transaction and expect the final funding mix to be largely debt funded. We will seek to minimize the requirement for any new equity, as Greg has said, through divestment proceeds, a proposed hybrid instrument and, in any event, the high cash flow accretion from the transaction, which is expected to rapidly reduce the leverage on the balance sheet. The combined entity creates a Trans-Tasman leader in transport fuels and convenience retail and positions the combined entity with significant additional scale to play a critical role in facilitating the energy transition and delivering significant benefits to New Zealand and Z Energy's customers and employees. Of course, the transaction is subject to customary conditions, and we will progress the regulatory approval processes, with the transaction targeted to complete in the first half of 2022. We would like to thank the Z Energy team led by Chair Abby Foote; CEO, Mike Bennetts; and CFO, Lindis Jones, for their engagement throughout the due diligence process and look forward to working closely together to now deliver on the time table for completion. With that, we will take our first question, please.

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

Maybe we could just start on the synergies. The $60 million to $80 million range you talk, Z has suggested to its investors that it could get $45 million to $55 million. I would have thought corporate cost savings make up most of the difference. I guess, it's a little bit surprising that you're not expecting to extract more given the well-established trading and shipping operation that you've got and the value of the short position in the New Zealand market. So if you could just talk us through your assumptions and your thinking around that, please?

Yes. So Michael, look, we've obviously focused on the value we see that we can deliver through the transition and through the short. I talked in the messages about what we see that we bring that's quite unique. And look, their numbers we're very comfortable with, and they're largely based around that value in the short. Clearly, the businesses have very similar business models and looking for further upside opportunities across other parts of the value chain, and looking to extract more value through the short is what we'll look to do over time. I think the other aspect is that we derisk the value through the capability that we bring in terms of the value on the short, and I think that's not to be underestimated.

Yes. That's fair. And then related to that, Z also pointed to another $40 million to $60 million of earnings uplift by FY '24 through network optimization, wholesale, convenience, retail, et cetera. Where did you get to in your due diligence around those earnings uplift targets? Do you think that they're reasonable and you would expect to achieve them under Ampol ownership?

Greg, do you want to grab that one?

Yes. Look, I think it'd be fair to say when you're assessing the transaction remotely, you're inclined to be a little bit more restrained than that, and it's difficult for us to get a sense, for example, from a distance of some of those potentials if walk look around the retail business. So I think on balance, we focused on areas where we thought we could bring significant value, and that was largely around the supply chain. Naturally, we've got a capability in retail. We think we can add value there. Where we can see sort of evidence of delivery was that obviously in those areas. That was valued more probably a little bit more conservative and not in any way a reflection of their plan or commitment to it, but more what's appropriate for us to ensure we're taking a disciplined approach to how we value this. And likewise, when we're putting a number to analysts and shareholders, we're doing -- we're putting down a number where we're committed to. I think, when you sit back and look at the metrics of the transaction, it speaks for itself. And we wanted to put a number for that we can commit to it and didn't feel compelled to go any further than that, Michael.

Okay. And then just the last one for me. Margins in the New Zealand market are very high by global standards. And look, I'm sure there are reasons for that, and they're quite obvious. They had been under some pressure in recent years. And to be fair, Gull New Zealand is probably part of the reason for that. What gives you comfort that the current level of Z margins are sustainable?

Yes. So look, clearly, it's a competitive market. As Australia is a competitive market, we think we have a good way of looking at that market. We understand it well. We've been there with Gull, and Gull is an attractive business, Michael, that's growing well. But I think the pace of new sites coming into the market, the availability of new sites and some of those impacts are flowing through. So look, we've taken a view based on the market understanding we have around where we see margins going.

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

Matt, can I ask you a question -- 2 questions? Firstly, on the conversion of the refinery. Not being a technical person by any stretch, but when you talk about conversion of refineries, it's almost like a roll of the tongue to us financial people. And we just say, that's easily done. Can you give us a bit of a rundown please, obviously, in your DD? Because a large chunk of these early synergies have relied upon that conversion. Can you give us a bit of an idea of how easy that conversion is actually going to be? What's likely to be roadblocks, challenges? And what's the time line likely to be? Because it does appear that the initial phases of least are very reliant upon a smooth conversion of that refinery.

Yes. Sure, David. Look, let me make a couple of comments and then pass you to Brent who's on the call. Look, I think we've been impressed through our -- through the diligence process, getting a good view of how much planning has gone into the conversion. It has been a very well-managed process by RNZ. They're working through that process, and they've had their shareholder vote. There's a lot of work that's underpinned that, and they're now targeting closure and conversion in the second quarter of next year. There's a lot of work to go into that in terms of the planning, but I'll pass you over to Brent to give you some more details.

Excellent. Sure. Thanks, Matt, and thanks for the question, David. Yes, you're right. It's a complicated activity, but the people involved at RNZ had been operating that asset for a long period of time. They understand it really well. As Matt said, there's a lot of planning that's gone into this. This is not a rushed transition. This is very methodically planned out, and there's a lot of activity to ensure it goes smoothly. Risk around these things really comes from, obviously, there's just a lot of sequencing to put into place, and the team having contingencies around things slightly deviated on time lines, et cetera, due to the logistics -- complex logistics inside a refinery. But yes, we've seen that there is a significant amount of planning that's gone on, and the teams are in place to manage that transition.

Those synergies that's quoted, are they mixed synergies? Or are they just gross synergies?

They're net synergies. Excuse me, clarify what you mean. Just clarify what you mean to make sure I'm answering the question correctly.

The conversion, Greg, like you factored into the cost of the conversion. In fact, you fully factored the costs in as we can affect that...

Yes, yes. That's gross.

Excellent, excellent. Matt, the second question I've got is Slide 17, and it really raised my attention, I suppose. I still don't know what to make of that slide, the current energy needs and future energy needs. What time frame are you talking? Because you basically made a big acquisition on that big rump fuel diesel, petrol, jet and lubricants, and that when you look at the future energy needs, it doesn't look that great. So you could take it as an opportunity, but you could also take it as a material threat. Now could you get and elaborate a little bit more as to what the advantages of Z will be? Because I know you gave a bit of a talk about them being the leader in biofuels in that. But what sort of costs are likely to come through in this transition? What time frame are you looking at? Because when I look at that, you've doubled up on a very big acquisition here, transitioning acquisition or a company transformational acquisition, but when you present that slide, it sort of like I see it more as a threat than as I do as an opportunity. Can you tell us why you should see -- why we should see this acquisition as an opportunity to that chart that you presented as opposed to a major threat or increased threat?

Yes. No. Sure, David. Look, I think, clearly, we are going to transition to lower emission solutions for our customers over time. The size and scale of that challenge, I think, shouldn't be underestimated. So the New Zealand Climate Change Commission published its report in the first half of this year. And if you can dig out those numbers, Z has talked to them and also talked about its own view, but that report goes through the number of barriers that are in place. And the size and the scale of the investment required to make that transition occur is quite significant across all product types. Really, clearly, aviation is very hard to abate. But even when you look at the enabling infrastructure that's going to be required for electric vehicles or for hydrogen, it's a big challenge. So this is going to happen over some period of time. That work, I think, said that there will be stable fuel demand essentially for at least the next 10 years. And I think in coming out with our final report, the Chairman of the CCC said the uptake of EVs may even turn out to be somewhat slower than we might have initially thought. And I think that's where we can play a real role together with Z over time in providing that enabling infrastructure. So the distribution network critically provides access to the customer, and it also enables charging or other forms of energy to be distributed by way of example. So whether that's some of the hydrogen pilots that we're trialing, whether it's biofuels that Z is -- and New Zealand more generally are pushing ahead with, there are a range of different technologies that will be pushed forward. But I think all of them rely on having access to the customer and the asset base to get them to market. So that's where I view it as an opportunity because there's not a really significant remediation liability, unlike upstream energy companies. And so I think we are -- long term, much as it will take quite some time, we are well positioned to benefit from the energy transition longer term.

Your next question comes from Grant Saligari from Credit Suisse.

I've got 2, if I could. Just one, in terms of the divestment of Gull, the -- just in terms of the scope of that business, the counter launch in New Zealand -- for Ampol New Zealand, I think FY '20 showed just over NZD 50 million of EBIT. Just confirm that, that is actually -- that, that reflects essentially Gull, that there's nothing else in there that would be retained just so we get an approximate sizing around that business.

Yes. Look, that's a fair indication of EBITDA. I think we've guided previously sort of -- in that sort of $70 million to $80 million range of EBITDA, and it is Gull-related. There's nothing in there that's retained just mainly a key [ question ].

Yes. Okay. That's helpful. And just secondly, just on the gearing objective -- or the gearing target that you could get to, is there anything -- so Z has some retail notes and some private placement bid. Is there anything in terms of covenants within those facilities that sort of constrained in terms of where you can take a gearing to? Like could -- can you take it up towards the upper end of your 2 to 2.5x EBITDA range?

Yes. The short answer is there's always sort of a review or a market. I think with USPP type facilities, but the way they're priced is unlikely to lead to anything, and there's nothing in there from a covenant perspective that causes us any concern. I mean, 2 to 2.5, as you say, is just slightly below that sort of Moody's ratings threshold anyway. And we might -- depending on final funding mix, we might trip above that temporarily, but we'd certainly be maintaining that target and then working our way back into it quickly. And when you look at the cash generation of the combined business, I think it will be fair to assume we can be back at the bottom end of that relatively quickly in normal market conditions.

Okay. And if I could just ask one more, if you wouldn't mind. Just on the divestment of Gull. If Commerce Commission says that you have to have a base of your -- some bonding arrangement to actually divest Gull before the acquisition of Z, does that create sort of insurmountable hurdles for you? Or can you go ahead with a committed divestment of Gull, i.e. with an IPO or an identified acquirer and a contract prior to consummating the acquisition of Z?

Yes. Look, I might answer, and then Matt dive in and fill in any blanks if you like. But look, we'll look at a dual track sort of process on Gull. I think the trade sale is probably the most likely and logical, but there's certainly a strong rationale for an IPO given its size and, in some respects, the space that Z will leave on the New Zealand Index if the transaction completes. So that's -- the process will run. In terms of timing, I mean, I just -- it wouldn't be appropriate for us to preempt where the NZCC would go. We'll be seeking a prescribed period post completion to divest. But I think the important thing is today's milestone really lets us now in earnest go and actively market the business and have the sort of discussions you'd naturally expect we will have, an early sounding, really encouraging across a range of potential [ suitors ], whether it's sort of industry players with upstream capacity, other trade players and financial players. You can imagine, at that size, it's a good quality business. It's got some growth ahead of it, and I think it's, for a lot of reasons, going to be attractive to a number of different types and potential buyers, full stop.

Your next question comes from Mark Samter from MST Marquee.

Congrats on given the deal to this stage. Just a question on the synergies. I know it's the footnote says it's based relative to FY '22 earnings. But I guess for me, the more important question is, is it relative to FY '22 volumes, which has obviously been impacted by lockdown, loss of [ jets ], et cetera?

Yes essentially is the answer, by and large. Naturally, we took a view on future volumes and the delta between import and refining. But by and large, that's a fair statement, yes.

The natural tone of the recovery outside of the short and that earnings would all flow through the business are outside of that number, Mark, I would say.

Yes. So I guess, in a normalization -- full normalization of volumes, that should be higher synergies in effect.

Well, the short -- the higher volumes will flow into the short. They'll also flow into the profitability and the rest of the value chain as a normal sort of -- a normalized earnings recovery.

Yes. Okay, okay. Perfect. And just then another question around, I guess, particularly how we think about how you manage the balance sheet into deal completion. But then after, you'll probably say this is deeply unfair after taking 15 years to get the framework to 2 to 2.5x net debt to EBITDA. But as you guys point out yourselves, this transaction is materially more free cash flow accretive than it is earnings accretive. Does even 2 to 2.5x start to earn the side of being too conservative and maybe much more comfort around the upper end of that range? And particularly when we think about capital management post completion and post maybe a bit of deleveraging, can the business start to take on a bit more debt post this transaction?

I think no -- not for today for us to sort of dive into that. I think what it does reinforces our ability to commit to that leverage range. And to your point, depending on the ultimate funding mix, to the extent we go over in the short term, our expectation would be we'd be back operating in that. And as soon as we're generating cash flow that takes us below, we'll be looking at other options to deploy our capital. And it's always assessed against the attractiveness of capital management and off-market buybacks. So I think it leads back to that, are we going to lift our gearing thresholds. It's just not something we're contemplating at this stage. But -- and I think it would confuse the message if we were to sort of open it up at the moment. We'll just integrate the business and bring that into the Ampol sort of mold, if you like, and mix and assuming where -- the transaction completes, and then we'll just reassess at that point.

But I think what I would add to that, Mark, is we've got real confidence in the business. The Lytton deal obviously underpinned the volatile part of earnings that sat within the business. We're in a different place now. We want to see that work for a few periods. But I think when you look at the business going forward, the confidence that we have in the business enables us to sort of take a funding approach to this transaction, as we've articulated today, and that does reflect our confidence in the business and in our own business and the business that we're looking to buy.

Your next question comes from Gordon Ramsay from RBC Capital Markets.

And congratulations on a good announcement. Just on the transition and synergies, that NZD 60 million to NZD 80 million, is that -- that's Z Energy, right? I guess, where I'm coming from is I just want to understand whether you're accounting for benefits to Ampol's international trading and shipping business in that number.

We're certainly carrying the value that they can deliver wherever that is in the value chain. We haven't then gone on and estimated what flow on effects it might been, say, into the Australian business, for example. But yes, it sort of captures where the margin is captured, whether it's Australia, sort of New Zealand or our trading and shipping division, for example. I would just look at that in aggregate.

But Brent, maybe do you want to sort of add with more scale now in terms of our position in region? So the 23.5 billion liters of combined scale when you include the international volumes, how does that enable you to sort of -- to extract value more broadly?

Yes. I can add a bit to that. So a couple of things come to mind when we look at Z. Ultimately, the trade and shipping business really adds the other end of the value chain flexibility. So our ability to optimize where we load from is a driver of the value add. With more volume, that basically means you've got more decisions and choices to make on where you load. Similarly, when you combine the New Zealand and East Coast Australia demand, you get more decisions on how you discharge volume as well. So there will be times where there will be options to, say, share a cargo, say, flowing out of Europe where there's maybe a large demand in Sydney, which on its own merits wouldn't be able to get to New Zealand due to parcel size, et cetera. So the options where, when you look at the volume in aggregate, whether it's absolute size or just the logistics flexibility due to the infrastructure in both locations that you can make new value-adding decisions. So linking that back to the answer that, that -- and we are looking at value collectively because, obviously, ability to predict when and where and how a cargo will be managed is quite complex and difficult to do it on a forecast basis. But clearly, there is flexibility and options there for us to drive synergies out of the 2 businesses.

That's really good color. Just in addition, like when we look at Lytton and the fact that the BT buy-sell arrangement terminated, would there be opportunities to sell volumes that would otherwise would have ended up in the Queensland market across to New Zealand? I mean, doesn't that fit nicely with maybe an opportunity that's developed from that BT by acceleration completing?

No. Yes, it gives us a lot more flexibility having that market in another 4-or-so billion liters, depending on sort of whether you're pre or post COVID across the Tasman has a lot of optionality for us. So we supply some jet from Lytton across into New Zealand, but I think, particularly when we complete, as I mentioned in my comments, Gordon, our 10 PPM Sulfur and gasoline upgrade at Lytton, that will open up a new suite of opportunities for us to leverage Lytton into that overall integrated value chain, and that's quite interesting for us.

That's excellent. And lastly, just for me. The optionality to repurpose and adapt new set of energy infrastructure assets, can you just elaborate on that a little bit, please?

Well, look, I think it's very similar to -- we released our own future energy and decarbonization strategy. And in May, I think Z has got a lot of those similar characteristics. And I think repurposing that infrastructure, to give you a couple of examples, on the electricity side, you've got the EV charging station rollout to 120 sites that we're rolling out across our network. That experience will be valuable in New Zealand. And Z -- the Z sites will equally have that opportunity. You've got, I think, an opportunity like the virtual power plant, battery and solar panels, battery virtual power plant opportunity that we're testing in Adelaide with -- in partnership with Tesla. Equally, that's repurposing some of our sites for that purpose, and that also might be quite interesting in the New Zealand context if you look at the energy or the electricity markets over there at the moment.

Your next question comes from Daniel Butcher from CLSA.

I just had a couple of quick ones for you. First one is just on the funding. Just curious, the scrip option that Z Energy shareholders that were sort of muted before, is that definitely off the table at this stage? There's probably a raising that you might need to do and also what -- whether the -- what the sort of coupon is on 50% equity hybrid these days?

The answer to your first question is, yes, the scrip is off the table. We are considering a secondary listing on the NZX, which is essentially unrelated, but would be a good service for Z shareholders and New Zealand shareholders generally that might want to participate in the story. But that's a decision we'll make in the coming weeks, but that has no flow in effect, obviously, to dilution or EPS. On the hybrid, look, we're just sort of assessing that market at the moment. I won't go into sort of detail, but conditions have been -- look pretty attractive at the minute. And there's plenty of references out there on price, so it just wouldn't be appropriate for me to be quoting at the moment.

Okay. And I guess, my other question is maybe touching a little bit on what [indiscernible] was asking before. I'm sort of struggling with the rationale of dealing a pretty high growth, very high margin relative to its peers business in Gull are not smaller to buy a premature business in Z and pay up a pretty hefty premium for it. Obviously, you've got some decent synergies in there. Can you just talk a bit more about how you sort of thought about that versus returning capital to shareholders, especially in a business which has an uncertain very long-term future at least and how you sort of thought about returning capital versus investing it, doubling down on was is currently a fossil fuel business?

Yes. Sure, Dan. Look, as I said earlier, I mean, starting from a returns point of view, so we compare this transaction with a buyback and the return of capital. In fact, we like this deal from a value standpoint because we think the metrics are quite compelling. There's upside there to those metrics that we're presenting, and we see that capital management remains a priority. It's not an either or, and we see ourselves moving rapidly back down through our balance sheet settings given the accretion that we see. Look, we've -- when you get the sort of -- when you step back and look at this strategically, we see that this is the market leader in New Zealand. The scale and the size and the value that we can unlock from that scale is significant, and it's more significant than the value we think we can extract out of Gull. What's not to say Gull is not a good business, but when we look at the future and we look at how we can unlock value, this is a more compelling opportunity for us, both strategically and in a value sense. And I understand the comment that you make around doubling down on hydrocarbons. I actually think -- I actually have quite a different view. I think a business like ours that has such significant access to the customer, such a strong customer position in combination, and with the physical asset position that we have, in combination with the broad capabilities that both businesses have, I think it's quite a compelling sort of optionality that is completely unpriced on future energy solutions for our customers. And I think, over time, that will bear out. And I think that's something that we're quite excited about. So the combined business, just to give you a couple of metrics, they're in the pack. But in combination, 112,000 B2B customers, 4 million weekly customer visits to our retail sites and 80% of the New Zealand population within 5 kilometers of a Z site, and our own metric is not dissimilar to that. I think that's quite compelling in terms of the optionality it brings us. When we're not sitting on a large remediation obligation, if you like, that doesn't -- that is -- that an upstream player would sit on. We're a marketing and distribution customer company rather, and distributing different solutions to our customers over time is how we will transition. It will take a long time because the scale of the challenge is considerable, but we definitely have a relative play leveraging those strengths.

Sure. All right. And can I maybe -- are there any other businesses in your position in the chain that have demonstrated they can turn the green opportunities into money this year? Or is it way too early stage for any of those around the world that you've looked at?

Well, I think when you look around the world, Dan, you can see where the world is in terms of transition. I think it's highlighting to you the scale of the challenge, especially to achieve an orderly transition. What I'm giving you is my view as to how the capabilities, the access to customer and the physical assets will play a role to help enable that. In fact, I think the challenge is far more difficult if you don't bring those attributes to the table. But biofuels and some of the work being done around there, I think, is going to be certainly towards the front end of the curve, sort of cropped in solutions, but that's challenging. There's an inherent variability in the bar fuel supply chain. And the supply and reliability of product to our customers today that -- is so important for them to run their lives or run their businesses. They are the solutions that we need to find.

All right. If I could sneak in one last one. Obviously, you funded this mainly with debt, and that's pretty cheap right now. You funded it with the same sort of weight of gearing you've got in Ampol right now. Would it still be as accretive?

It would still be as accretive. Yes, it will be.

Materially or far less than double digits?

I don't have the number at hand, but it's sort of in a sense or relevant because that's not how we're going to fund the transaction. So we've looked at a range of scenarios, and the plausible scenarios around which we would fund the transaction give us confidence to make the commitments we're making today.

Your next question comes from Scott Ryall from Rimor Equity Research.

I'll start with a couple of ones that I hope you fairly quick to answer. With respect to the Gull divestment, does that include the port and storage assets in Tauranga?

Yes. It's likely to, Scott. It obviously depends a little bit on exactly who the buyer ends up being and what they need and also the engagement with the Commerce Commission, but that's likely to be the case.

Okay. Likely, but not certain. So when you say you're committed to exit, your commitment is still subject to negotiations with the competition authorities. Is that a fair conclusion?

Yes. We need to find -- we need to work through a process to find the right buyer. And depending on the nature of that buyer and what their requirements are, that will need to dovetail with the engagement we have with the ComCom to make sure that we can satisfy the regulatory hurdle.

Okay. Great. And then in terms of the Z Energy business, they still operate the Caltex brand in New Zealand, right? What happens to that?

So our expectation is that will carry on in the market. So they will have Caltex-branded sites and Z-branded sites in the network.

Okay. So no -- there's no issue with your -- the Australian company owning Z Energy and the lack of ownership of the Caltex brand in Australia to that. That's a separate issue.

No. They're entirely separate, that is...

Okay. All right. And then my last one. This is probably a question for Brent, and it goes towards what he was answering before in terms of the optionality around using East Coast infrastructure. Have you got -- do you guys have an idea that -- you'll have an idea, but do you have an ability to talk to us about what proportion of the short position in New Zealand do you think could come through Australia?

Brent?

Yes, yes. I'll take that. Thanks, Scott. I think the main thing is it does change from time to time. So there'll be periods of time where the economic solution for New Zealand is direct delivery, very similar to how things work today. And there will be other periods of time, which can run for months where the oil pricing are globally incentivize a different solution. So I can't really give an answer. It will ebb and flow from 0 to a noticeable percentage, but nothing specific, and nothing built into plans.

Okay. And do you need any more tanks at Kurnell to do -- to ensure that you can maximize your flexibility, I guess?

No, we don't.

No? Okay.

We do have sort of -- we can bring tanks back. We've got tanks at Kurnell that we can bring back very cheaply if we want to, Scott. But it's -- we don't see that we need to at the moment, but it's the flexibility with the storage position we have at Kurnell, to the extent there's seasonality and market opportunity between Northern and Southern hemisphere, for example, as Brent described earlier, that gives us when those conditions or when that sort of window is open, we can capitalize on that in a way that others just can't.

Okay. And is there anything more ambitious that you can do in the New Zealand market given the entire market is subject to the transition from refining New Zealand towards needing to import?

Sorry. Can you explain the question a bit more, Scott?

Sure. So refining New Zealand, which is -- I mean, you guys know that if BP and Mobil also has interest in that, and you've got a certain proportion of their supply like Z Energy got from there, so they need to start importing as well. Is it likely that they do it? Or is that an opportunity for you guys given that New Zealand for their global operations is a fairly small part of the overall pie, and they've already shown a lack of willingness to invest in the Australian market? Therefore, they may not want to invest a huge amount in New Zealand.

Yes. There's -- I think there's opportunities there as we look at how different players approach the industry and approach the transition. I think we've got good experience in terms of how that has worked in Australia, and that's part of the experience that we bring. So we're not counting on any of that. But to answer your question, yes, there could be some interesting options as we go forward.

Your next question comes from Joseph Wong from UBS.

Firstly, congratulations on the transaction. Just a quick, I guess, one question for me. Just wanted to understand, I guess, the process on this Overseas Investment approval. And is the New Zealand listing something that you have brought forward to try and, I guess, support that process?

Look, I think there's certainly an element of that. I think that would be in terms of national interest, for lack of a better term. Maintaining a position on the New Zealand Stock Exchange will appeal to the various stakeholders, and it's also a good message for the local shareholder base of both Z and Ampol that when you've got a company like of Z significance on that stock exchange exiting, it leaves a little bit of a gap on the [indiscernible], and I think it's an opportunity to do that. So I think there's a number of stakeholders that would be interested, including shareholders. I mean, our position isn't definitive at this stage, but we're certainly open to it. It's not an expensive exercise. It's a bit of an administrative nuisance, if you like, as a secondary listing. But that's a relatively low threshold, frankly. And if there's value seen by shareholders and other stakeholders, it would naturally tend towards it.

Yes. So just to clarify, it's less of a financial, I guess, hindrance. It's more of a confirmation of Ampol's, I guess, commitment to staying in New Zealand. This is still your listing.

I would think of it as that and a shareholder service.

Yes. Got it. And then just finally, that is all captured in your, I guess, upper end of your synergies that assumes you don't have a dual listing. Or is there further synergies in there?

Well, to be honest, it's such a small cost of doing it. It's not going to play out from a synergy perspective in terms of earnings growth. And I don't think it would be heavily traded necessarily to suggest that there's share price upside to it either. So we don't look at it in terms of synergies. We look at it as a relatively small cost that would be -- that you would have to net off against other synergies as part of doing the deal. But we're talking about -- we're talking a couple of hundred thousand dollars a year, to put it in context, is pretty insignificant in the scale that they were talking about.

Your next question comes from Mark Wiseman from Macquarie.

Congratulations, Matt and Greg, on a great outcome here. I just had a couple of questions. Firstly, on the Marsden Point Refinery conversion FID, my understanding is that was supposed to have taken place in September. I was just wondering if you could provide a bit of perspective on when you're anticipating that to take place and what the key issues are.

Yes. What I picked up, look, it's -- and Brent is on the call as well and can be across some of the detail. Look, obviously, there's conversations that need to be had with each of the shareholders and RNZ. I think the short answer is it's well progressed. RNZ trying to align those shareholders would be a tricky process, I would imagine, but it's well progressed and really looking Q1, Q2 -- back into Q1, early Q2 for that transition to kick in. I don't know if there's a lot more to add. But when you -- I guess, when you're getting into the nuts and bolts of it, there's always an element of risk sharing that needs to be negotiated and then you get into operational issues like vessel scheduling, and those sort of arrangements sort of just being fine-tuned. But from our perspective, in due diligence going in, I think, clearly, shareholders are all aligned in terms of what they're trying to achieve, and that gives you a high degree of confidence around how that sort of process will play out because, essentially, people are all trying to manage for the same outcome. So I don't know if there's anything you want to add there, Brent. But I think it's probably the big answer.

Yes, I think. That's it, Greg. They're moving through that process. Nothing to add.

Okay. Great. So just to clarify, you said Q1 or Q2...

Look, Z has made their communications around this issue, but I think it's -- they're targeting sort of the back end of Q1, early Q2 was always the dates they had in mind.

Yes. Okay. And just final one for me just on M&A generally and capital management. Obviously, the paparazzi saw you in another data room. There's an electricity asset that was reported. Could you maybe just comment -- as we experience this recovery, particularly in 2022 and you close this deal, cash flow is going to be very strong. Could you maybe just give us some perspective on how you think about capital management versus the value capture of buying electricity or other assets?

Mark, let me start, and Greg might build on my answer. I think you can see from what we've been focused on in the last 6 weeks, without wanting to comment on the paparazzi, we're very focused on this transaction. And I think this transaction demonstrates what we're about, which is about financial discipline and pursuing -- if we do pursue inorganic growth, we compare it in a very disciplined way to capital management, and we're going to continue to be very disciplined when we look at what we do. In terms of -- and capital management, absolutely, and getting the franking credits out remains a priority. This transaction in no mean -- in no way undermines that commitment. In fact, it reinforces that when you look at the free cash flow accretion, that comes out of this business. If I then sort of touch on the longer-term question of where do we deploy our capital, yes, we absolutely remain interested in our shares, as I've said. But on the future energy side, that will take some time. We've been very clear in releasing our future energy and decarbonization strategy in May. We've said we'll spend $100 million over the next 5 years looking at pursuing different forms of future energy and delivering low emissions solutions for our customers. And so -- we're very much on that path, looking at how through the various test and learn projects that I've referenced, we can play our role, and we think we do have a very important role to play. But our capital allocation framework, Greg might like to build on and just reinforcing the way we apply that.

Yes. I don't know if there is too much more to add other than to say, we will, and as we've demonstrated in this transaction, remain financially disciplined. The 2 to 2.5x leverage is where we think the organization should set its leverage thresholds, if you like. And the cash generation of the combined business, I think, really lends itself well to capital management in the medium term. And naturally, any sort of surplus capital, we'll look at how best to deploy it. But we always weigh it up against our framework and against the off-market buyback as our preferred mechanism for returning surplus capital. So I think it puts us in pretty good state.

There are no further questions at this time. I'll now hand back to Mr. Halliday for closing remarks.

Yes. Thank you very much, and thank you, everyone, for your time this afternoon. I think it's an exciting and transformational opportunity for Ampol that we're talking to you about. We've been financially disciplined. We will remain financially disciplined as we progress through the completion process. We will leverage the balance sheet. We'll be prudent, but the strength of the combined businesses and the levers we have to pull mean that we can largely debt fund this transaction. And we expect the returns that come out of it to be quite compelling, both in terms of earnings and free cash flow accretion, obviously underpinned by the synergies with further upside opportunities. I do think, strategically, the creation of a Trans-Tasman leader in fuels and convenience, that additional scale does position us to play a very important role in facilitating the energy transition over time. And that, I think, through our test-and-learn projects, we can demonstrate the role we play increasingly in the years to come. I'd like to once again thank the Z Energy team, Chair Abby Foote; CEO, Mike Bennetts; and CFO, Lindis Jones, for working with us over the last 6 weeks. And we look forward to keeping you appraised of progress as we move through completion. Thanks for your time. We'll talk to you soon.