Ampol Limited (ALD) Earnings Call Transcript & Summary

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

Thank you, operator. Good morning. My name is Matt Halliday. I'm the Managing Director and CEO of Ampol Limited. Welcome to our 2021 full year results call. I'm joined by Greg Barnes, our CFO, who will discuss the financial results in more detail. Following the presentation, we'll take questions, and we also have Joanne Taylor, Brent Merrick and Andrew Brewer, joining us on the call today. During the presentation, we'll be referring to the documents lodged with the ASX this morning. As safety always comes first at Ampol, I'll start with our safety performance on Slide 3. At the half, we reported on our improving personal safety performance. And I'm pleased to say that our targeted improvement plans have delivered a marked reduction in injuries. The comprehensive improvement plans to address the rise in Tier 2 process safety incidents from our third-party carriers have delivered a welcome reduction in incidents in the second half. And we remain incident free in terms of Tier 1 process safety incidents since 2018. And of course, our focus on COVID safe operations for our people and our customers continues to be a primary focus for our operations teams across the entire business. I'm a firm believer that safety is an important indicator of the overall health of the business. And as such, it's extremely pleasing to see the very positive momentum we have in this area. Turning to the highlights of our performance now on Slide 4. I think we'll look back on 2021 as being a truly transformational year for Ampol, as we made significant progress on our strategic priorities while also delivering strong operational and financial performance. Looking at our strong financial performance first. RCOP EBIT of $631 million is the highest result since 2018 and was achieved against the persistent COVID-19 backdrop as we focused on what we could control in what was a challenging external environment. The result was underpinned by strong operational and financial performance from Lytton, record F&I international earnings and solid performance in retail despite the impact of COVID in the third quarter. This strong financial performance was further bolstered by record total sales volumes of over 22 billion liters, as our strategy to diversify internationally bore fruit with successful trading operations out of Singapore and Houston. The balance sheet remains strong with low net borrowings and a leverage ratio of 1.2x. This is well below the target range, providing significant capacity to fund the Z Energy acquisition. Our operating cash flows were reasonably strong given the backdrop of higher crude and product prices and this provided capacity for further investment in the business and increased shareholder returns. During 2021, we returned $479 million to our shareholders through a combination of the off-market buyback and fully franked ordinary dividends. Taking into account the strong financial position and strong outlook, the Board has declared a final dividend of $0.41 per share, taking the full year dividend to $0.93 per share fully franked. Greg is going to take you through the details of our financial results shortly. During the year, we made good progress repositioning the business and building our foundations for the future. This includes our decision to continue refining operations, underpinned by the fuel security program that supports Australia's dual objectives of fuel security and an orderly energy transition. We continue to execute on our strategy to diversify and grow internationally with the Z Energy Scheme Implementation Agreement signed. Since launching our future energy and decarbonization strategies back in May, we have begun the build-out of our own capability and established a number of industry partnerships and connections. This has really enabled us to progress our thinking and next phase plans as we look to transition with our customers in the years ahead. I'll talk in more detail about our next steps shortly. And looking at our own operations, we have set the ambition to reach net-0 emissions by 2040, including setting interim targets and goals. Ampol's success is only possible through the efforts of our employees and the support of our customers and the communities in which we operate. Ampol team members are a key part of our competitive advantage with strong employee engagement and cultural health up 9 percentage points during the year. When coupled with the strong safety performance, I think this really demonstrates the underlying health of the organization and the importance of the well-being of our people. Customers have responded really well to the return of the iconic Australian Ampol brands, which combines a sense of history and nostalgia with a fresh new look. And the Ampol Foundation has continued its programs to advance education and community safety and well-being, including bringing back the Ampol Best All Rounder award in 2021 and continued strong engagement with our key partners: Surf Life Saving Australia, The Smith Family, the Stars Foundation and the Clontarf Foundation. Turning now to Slide 5. Ampol rebrand program accelerated through the year with 880 sites or almost half of the network now dressed in the fresh new look. The success of the Ampol rebrand has been nothing short of outstanding, in my view, with rebranded sites outperforming control sites across key performance indicators, including number of transactions, fuel volumes sold, premium volumes and card volumes. This represents a very material step-up compared to the update provided in August last year. And speaking of our card, the Ampol card rollout has been equally successful with old card customers now issued with the new Ampol card, which in 2021, retained its #1 market leadership position for fuel cards in Australia. Slide 6 shows the key group financial metrics. Profit metrics increased substantially right across the board. The balance sheet is exceptionally strong with significant capacity in place to fund that acquisition. And total sale volumes grew nearly 10% to more than 22 billion liters. That's an all-time record in our more than 120-year history as a company. Australian volumes were resilient at just over 13 billion liters despite the extended lockdowns and international sales volume growth of 38% was a real highlight. And the strong operational performance we saw at the Lytton refinery led to production of 6.14 billion liters, allowing Ampol to take advantage of the improving refiner margin environment that we are now seeing. Capital discipline has been and will remain a key focus for Ampol. Return on capital employed was up 3 percentage points to 12%. The balance sheet capacity and strong cash flows have been directed to both shareholder returns of $479 million and investment back in the business of $324 million. Through the off-market buyback and ordinary dividends, nearly $200 million of franking credits have now been released, maintaining our commitment to our shareholders. I'll now hand over to Greg to take you through details of the group and segment performance.

Thank you, Matt, and Good morning, everyone. Turn to Slide 8. And I'll talk briefly to the Australian market first and then talk to Ampol's volume performance. After a pretty encouraging first half, the second half saw Australian product demand decline with our 2 largest markets, New South Wales and Victoria, spending the entire third quarter in lockdown. This impacted petrol demand in particular. So despite the strong start of the year, petrol demand finished only slightly ahead of last year. Demand for diesel where Ampol is overweight, grew finishing the year up 5%. While Australian jet fuel demand fell a further 9% in 2021 due to the full year impact of travel restrictions. Looking at Ampol, group fuel sales increased by almost 10%, driven by the strong international sales growth, which reached approximately 9 billion liters, up 38% from 2020 levels. Simply put, our strategy to diversify into international markets has contributed to Ampol's growth during a challenging period in Australia. Australian wholesale volumes were down 3.4%. This decline is driven almost entirely by the full year impact of border restrictions on jet fuel and the expiry of swap arrangements with a competitor. Our underlying B2B volumes in petrol and diesel grew sufficiently to offset the impact of lockdowns on wholesale volumes into the reseller segment. The convenience retail was a story of 2 halves. Fuel volumes grew 5.1% on a like-for-like basis in the first half, but the impact of lockdowns in the second half led to a decline in volume of 10.9% on a like-for-like basis. As a result, full year volumes were down 3.2% on a like-for-like basis. Slide 9 summarizes our group profitability. We're quite pleased with the strong performance in a relatively challenging market sort of conditions. On an RCOP basis, the group delivered just over $1 billion in EBITDA, up 23% on the year, while EBIT was $631 million, up 57%. The headline level, Fuels & Infrastructure grew EBIT by 170%. Lytton's operational performance was excellent and it benefited from strong refiner margins, particularly towards the end of the year. Lytton operated for the full year in 2021 following a major maintenance shutdown in 2020, as a result of displaced imported volumes, the margins from which reduced the rest of F&I Australia's earnings year-on-year. F&I International earnings grew overall on the back of growth in Gull and in our trading and shipping business. As I mentioned earlier, the convenience retail business performed strongly in the first half in both fuel and in shop, while the second half was significantly impacted by the responses to the Delta variant in the period between July and October. This occurred as crude and product costs continue to rise, putting pressure on retail margins. Operationally, the retail team focused on what they could control, improving shop gross margin and executing on the EBIT uplift strategy. These combined actions contributed to the solid performance with an EBIT of $254 million for the year. As a result, RCOP NPAT grew by 72%, while EPS was up 80%, reflecting the accretive benefit of the off market buyback undertaken in the first half. On a historical cost basis or HCOP basis, Ampol reported an NPAT of $560 million compared with a loss of $485 million last year. In addition to the uplift in RCOP earnings, the result was supported by inventory gains on rising crude and product prices and a material reduction in significant items. Slide 10 is an important one. It demonstrates the impact of the Delta-related restrictions to Q3 trading, while Q4 reinforces how quickly Ampol's earnings respond to improve trading conditions. As you can see, we had a strong finish to the year with the fourth quarter group EBIT of $189 million. Within that result, Australian fuel sales were the highest level since the pandemic began and post-lockdown traffic for convenience retail also improved, returning to pre-COVID levels in December. Refiner margins also increased sharply in the fourth quarter, driven by global dynamics. So Matt will touch on recent trading and the impact of Omicron, we take quite a bit of comfort from what we saw in Q4 as we look ahead. Slide 11 shows the key contributions to the strong improvement in group EBITDA and in EBIT. We really just discussed those movements, so I'm just going to skip straight to Slide 12. And Slide 12 looks into the F&I result in more detail. You'll see we've stripped out the impact of depreciation and FX to give you a clearer view of underlying trading. Obviously, the refinery is a standout, and I'll talk to that on the next slide. However, in interpreting F&I's performance, you should consider Lytton's impact on earnings, net of the reduction in F&I Australia. That reduction is entirely the consequence of lost margin on reduced import product to meet demand last year, while Lytton wasn't in operation. While the underlying trading conditions for F&I Australia remain challenging with lower volumes across the retail sector and the full year impact of reduced jet demand, these impacts were offset by cost management and operational performance throughout the supply chain. Earnings from the international business were up 31% year-on-year, with our international trading business and Gull, both performing well. International volumes grew by 38% or 2.4 billion liters, mostly through our strategy to diversify by geography and customer. Gull performed well. They grew volumes and added 9 retail sites during the year. Earnings from SEAOIL in the Philippines were essentially flat, which was a good result considering the COVID disruptions in that market. We also invested $7 million in building capability to support our future energy strategy. Slide 13. On Slide 13, we can dive into Lytton's performance. Lytton's refinery benefit from both increased production and improved refining margins. Production increased to 6.4 billion liters in the year from 3.53 million liters in the prior year. It was a strong operational performance this year and comparisons are also impacted by the T&I shutdown in 2020. The operational performance of the refinery was exceptional with the highest yield ever and production at its near highest levels since 2016. We also saw U.S. dollar refining margins, which averaged USD 7.50 per barrel in 2021, up from USD 4.70 per barrel in 2020. This lifted earnings by $123 million, net of the impact of the high strength, which increased to $0.75 from around $0.69 last June. The temporary refining production payment or the TRPP contributed $40 million in the first half and the improved refining margins in the second half meant we did not benefit from the FSSP or the fuel security services payment during the year. So on Slide 14, we'll look at the KPIs for our convenience retail business. So I've already talked to the first and second half dynamics in the retail results, in particular, the trading restrictions between July and October. I think in that context, the retail team delivered a robust set of numbers and finished the year strongly. The retail fuel volumes were 3.9 billion liters, down 3.2% on a like-for-like basis compared to 2020. This included a more than 10% decline in the second half. Pleasingly, premium fuel penetration increased slightly over the year to 52.2% even as prices rose sharply. Network shop sales declined by just 2.6% on a like-for-like basis. Our nonfuel EBIT uplift initiatives reached $52.6 million by year-end against a 2019 base, and we are on track to achieve the target of $85 million by 2024. Slide 15, the relative balance of our retail volume mix between petrol and diesel has helped to mitigate volume decline across the network. However, it did increase our exposure to weaker diesel margins this year. Essentially, while falling crude costs was supportive of margin expansion last year, the converse was true for most of 2021, where the market takes time to pass through rapidly rising prudent product costs to bolt prices. Slide 32 in the appendix is a good illustration of this. The continued focus on things we can control, including waste, shrink and other costs saw shop contribution maintained over the year despite reduced sales. Progress in these areas means we are well positioned to benefit from improved trading conditions as eventually. The transition to company operating model is virtually complete with efficiency gains contributing to a reduction in the cost of doing business. I'm turning now to our balance sheet and our cash flow on Slide 16. Operating cash flows of $635 million was a pretty pleasing result considering the $520 million increase in working capital during the period, almost entirely driven by rising crude and product prices. We returned $479 million to shareholders during the year, $300 million of which was by way of off-market buyback. The buyback source repurchased 4.6% of issued capital at $26.34 per share and returned $19 million of franking credits to shareholders. As a result, we exited the year with $724 million of net borrowings or $1.7 billion of net interest-bearing liabilities, inclusive of leases. This represents net leverage of 1.2x after adjusting for the hybrid equity credit of $500 million. We continue to maintain our targeted leverage range of 2x to 2.5x, giving us capital management flexibility, including in our funding of the Z Energy transaction. So I'm now on Slide 17. Since 2019, Ampol has been able to return more than $1.1 billion to shareholders through a combination of buybacks and ordinary dividends. These returns and dividends have been fully franked, and we've released over 40% of our franking credit balance in that period. Today, we also announced a final dividend of $0.41 per share, taking total dividends to $0.93 per share fully franked. This represents a payout ratio of 61% of the full year RCOP NPAT and is in the middle of our stated range. As expected, capital expenditure was skewed to the second half, largely due to increased rebranding activity, Metro store rollouts and a small Lytton T&I. Our full year CapEx was $324 million, and that was in line with the guidance we gave at the start of the year. Looking ahead, we expect CapEx to be in the order of $400 million in 2022, in large part due to the completion of the Ampol rebranding rollout and the ramp-up of investment in our 4 key highway sites at Pheasants Nest and on the M4. So beyond that, our improving margins and earnings and cash flow profile, together with our balance sheet, increases the resilience of this business and positions Ampol to progress our plans in relation to the Z Energy and Future Energy, while ensuring optimal returns to our shareholders. So I'll leave it at that and hand back to Matt and come back for questions in a little while. Thank you.

Thanks very much, Greg. So we're now on Slide 18. Everyone at Ampol can be proud of what we have achieved in a year that was significantly disrupted yet again. We have delivered strong operational and safety performance. Our financial results are the strongest they've been for several years with record sales volumes, and we're building a track record for doing what we say by also delivering on our 2021 strategic priorities. For the enhance pillar, our priorities included the rebrand, which has exceeded even our own expectations, and we're ahead of schedule and the sites are outperforming across all key performance indicators. We completed the refinery review, deciding to continue operations until at least mid-2027, underpinned by the federal government's fuel security program. It provides reduced earnings downside risk while maintaining benefit and exposure to the full upside when refinery margins are strong as we've seen recently. It also allows time to further consider repurposing options for what is a highly valuable infrastructure site. Our strategy to optimize the retail network continues to be executed in line with our plans, and we have been progressing the key highway service center redevelopments at both Pheasants Nest and on the M4s at Eastern Creek. We have been able to restore returns from F&I Australia, including Lytton, through the $230 million increase in RCOP EBIT, which increased return on capital employed in that business to 11%. In terms of the expand pillar, our focus has been on achieving our targeted EBIT uplift from a 2019 base through growth of $70 million in international earnings and $85 million in retail shop earnings. We are well on the way to achieve those targets by 2024, as Greg has just outlined. The evolve pillar is centered around building the foundations for the energy transition. In May, we released our future energy and decarbonization strategies, and we've been making significant progress in building the team to deliver on the plans we have in place there. That includes the EV fast chargers rollout, as well as collaborating with Tesla and Enerven to pilot a virtual power plant at 3 retail sites in South Australia. To learn more about the hydrogen supply chain, we've partnered with Fusion Fuel Green to develop a pilot production plant for green hydrogen up at Lytton. And for our B2B customers who want to take action sooner, we have trialed a carbon-neutral fuels offering. But there's more to do, and we anticipate realizing various opportunities in this space as we progress through 2022. I'd now like to turn to an update on our strategy and move you on to Slide 20. Ampol's view of the energy transition is evolving, and we have developed proprietary climate modeling of the transition of Australia's transport fuels industry. We've considered a range of scenarios as part of that modeling with the 2-degree scenario for road transport presented here for illustrative purposes. I should note that Ampol supplies energy for a range of purposes, including industrial uses, marine and aviation that are well beyond road transport. Modeling Lytton has really reinforced our view that Australian road transport fuel demand is going to remain robust until at least 2030 under all scenarios. We hold this view because the pathway to decarbonization of road transport will be driven by the near-term availability of EVs in Australia. Concurrently, government policy and the pace of technological innovation will be important to reaching cost parity. And of course, the existence of enabling infrastructure to support the significant charging demand and alleviate range anxiety for customers is also going to be critical. EV penetration in Australia is currently very low at about 0.2% of the total fleet. And while EVs as a percentage of new cars sold has increased to about 2% of annual sales, it will require a significant ramp-up in sales to reach the estimated 15% penetration of the passenger fleet by 2030. A key point to draw from this slide, I think, is that the energy mix needs of our customers will change over time, and Ampol is taking the necessary steps to adapt. Turning to our response to the range of possible energy transition scenarios now on Slide 21. Our test and learn approach will step up in 2022, aligned with our commitment to spend a minimum of $100 million by 2025. And while we have formed a view today of the likely path for the mobility energy transition through our infrastructure assets, our brand, our supply chain expertise and customer relationships, we retain flexibility to respond to the differences that could and, in fact, are likely to occur in the pace of transition and changes to the energy mix. Our current view is that battery electric vehicles will be the solution for passenger cars short trips. Government and corporate fleets are likely to be the first movers. So in that sense, our market-leading AmpolCard customer relationships and forecourts, in our view, provide a platform to build a broad EV charging network with support from ARENA funding. As the energy transition progresses, as the previous slide showed, the range of energy types then expands. Traditional fuels like petrol, diesel, jet and biofuels are going to remain for some time, but electricity and hydrogen also enter the mix. Our customers' needs will expand, and the future of power and mobility is going to become a lot more complex, but Ampol is very well placed to make it simpler for our customers. Looking at those same government and corporate fleet customers, for example, Ampol aims to power their journeys through a combined fuel offer and electricity at their home and on the go, because we want to capture customers at the start, during and at the end of their journey. We see hydrogen as the primary solution for long-haul heavy transport. The economics are difficult at present but are expected to improve over time with fuel cell electric vehicles expected to be commercially available in the latter half of this decade, assisting with that transition. Biofuels and synthetic fuels will have a crucial role to play during the transition, particularly in hard-to-abate sectors such as aviation and industrial sectors like mining. So our focus areas for 2022 are quite clear. are, firstly, EV charging, including the rollout of an Ampol branded EV fast charging network with the support of ARENA funding. Secondly, an electricity test and learn via small-scale trials for energy retailing to demonstrate Ampol's value proposition, recognizing that in the future, EV charging will be an important part of a broader energy solution that is required by our customers. Thirdly, continuing to assess the hydrogen supply chain through the completion of the pilot plant up at Lytton. And finally, by partnering with our customers to provide biofuels delivered via our existing infrastructure. Moving on to Slide 22. The Z Energy acquisition is progressing well. We're undertaking the necessary regulatory approval processes with both the NZCC and the OIO. The process for the sale of Gull is now well progressed with a strong list of shortlisted bidders. Z is undertaking the matters within their responsibility, and the Marsden Point Refinery is set to transition to an import terminal as of the 1st of April this year. We remain very hopeful that we can complete the transaction in the first half of this year, and that means we can cement our position as the Trans-Tasman market leader in both fuels and convenience. And while I spoke earlier of the role Z Energy will play in growing our international earnings, the combination of Ampol and Z will also create a stronger platform for the development of lower emissions energy solutions as we share knowledge and capability across Trans-Tasman. Turning now to the outlook and our key priorities for 2022 on Slide 24. Through our leadership position in fuels, Ampol is well positioned to benefit from the expected recovery in fuel demand, and we welcome the recent decision to open international borders to tourists. That will help the recovery in jet demand, which of older fuels has been most impacted by the effects of the pandemic. However, it's going to take some time for Australian sales volumes to recover to pre-COVID levels. The Lytton refinery retains full exposure to the expected refiner margin upside, while the fuel security services payment provides a level of support during periods of low margins, should they occur. We anticipate growth in convenience retail earnings from both fuel and shop through our market-leading convenience offer and shop formats as well as our ongoing focus on costs, waste and shrink. It's these elements, combined with the positive exposure of our company-operated model to increasing demand that really fosters growth. The Z transaction is expected to complete in the first half of '22, with earnings and cash flow contributing to the group's results in the second half, subject, of course, to the regulatory clearances and Z Energy' shareholder approval. Looking out to the longer term, we're clear on our key priorities to deliver improved returns for our shareholders. They are firstly, to complete the rebrand, which is performing very well; secondly, to successfully complete the Z Energy acquisition; and thirdly, to invest in future energy and decarbonization solutions for our customers. While the emergence of the COVID-19 Omicron variant has impacted recent trading, improved momentum in key profitability drivers in the fourth quarter, coupled with higher refiner margins has reinforced the responsiveness of Ampol's earnings to more favorable market conditions. I think this really provides cause for optimism for FY '22 as mobility continues to increase. And that ends our presentation of our results for 2021 today. In a moment, we'll take your questions. But just before we do, I'd like to thank Joanne Taylor for her efforts to reposition the convenience retail business. Joanne has advised me of her resignation to pursue a fantastic career opportunity to lead a company outside our sector with Compass as their Managing Director for Australia. It's a real credit to Joanne and her capabilities, but also reflects on the caliber of the management team that we have at Ampol. Joanne is going to be with us for further several months to ensure a smooth transition. But we certainly wish Joanne well in her future career. And while at a personal level, I will and we will all miss Joanne, we have a strong bench of talent here at Ampol to achieve our ambitions as a group, and she leaves a business and a team performing strongly as volumes and shop sales recover. Now Greg and I are here to take your questions. And just a reminder that we also have Joanne, Brent and Andrew on the line. And I may direct questions to them also. So with that, we'll take our first question, please.

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

The first question for me is just relating to costs. And most companies, this reporting season, have spoken about elevated operating costs, labor availability, freight costs, et cetera. Can you give us some color on what you're seeing in your business and to what extent costs are elevated, and also how your contracts allow you to pass that through on the commercial side of the business, please?

Yes. Thanks, Michael. So yes, certainly, we're seeing the same cost pressures, but I think are flowing through most industries at the moment from a labor point of view and more broadly through the supply chain. They tend to pass their way through the system, as you would expect from a pricing point of view. And certainly, our -- if you look at crude, for example, we're obviously seeing significant cost escalation flow through. Our B2B contracts tend to relate to and refer to market markers, and they flow their way through those contracts, as you would expect.

Okay. So you're not expecting any material drag on earnings?

So the cost pressures that we're seeing now, we tend to see them flow their way through the system. And as we have been for a number of years now, we remain very focused on managing our cost base and ensuring that year-on-year we're focused on ensuring those efficiencies are coming through the system. And that's a long-standing program of work, and that stands us in good stead for the conditions we're seeing at the moment.

Okay. Wonderful. Thank you. And just a second question from me. The potential conflict in Ukraine, how should we think about the risks, if any, that that presents on your business? I mean we can make our own assumptions about oil price, and that's fine. But is there anything that we should be thinking about in trading and shipping and any sort of news on refining would help as well. Not particularly, Michael. I think, of course, we've seen a big kickup in crude that has a timing lag into margins, and then we see that recovery. It's no different. So aside from that factor, refining conditions at the moment are very strong, remain very strong and nothing really to call out from a trading and shipping point of view. We always look to the various conditions that are playing out around the world, manage our risk very tightly accordingly, but no particular implications from that event that I would call out.

Your next question comes from Adam Martin from Morgan Stanley.

Perhaps you can just update on the Z Energy transaction, Gull divestment, and just you've got first half '22 for completion. Should we sort of see in June? Or is the potential for an earlier completion? Just perhaps you touch on that, please?

Yes. So look, the NZCC is currently scheduled to deliver a decision on the 16th of March, and we'd expect a shareholder vote a little shortly thereafter. And then subject to a positive resolution on both of those, we'd be waiting on securing the OIO approval. And so we'd expect it to happen through May and June, all going well. Can't give you any more precision than that. It's obviously in the hands of the regulators, Adam. Look, as I mentioned in my comments, the Gull divestment process is proceeding strongly. A good strong list of shortlisted bidders and we're moving through the completion of the sales process there. So nothing more to update other than we're pleased with where the situation is currently, and it's all on track from our perspective.

Sounds good. And second question, just on the minimum stockholding obligations, refineries have got some advantage there potentially just around storing oil and offsets with diesel. But when will those regulations be filed? It appears to taking a bit longer than I sort of thought, but if you could just talk through that, please? Yes. So the government's put its MSO regulations out for consultation at the moment. So there's a range of points that are under consideration. There's a lot of complexity and how it comes together. So it is taking longer. Look, from our point of view, I think we're strongly positioned. As you point out, Adam, the refinery means that we're well positioned with the accounting of crude to our stockholding obligations. Obviously, Ampol is well positioned with a strong infrastructure footprint. And so we certainly expect from 1 July this year to be compliant, and we're engaging with government and industries, on the regulations as they're making their way through the system.

Your next question comes from Dale Koenders from BarrenJoey.

You're very kind to maybe focus on some of the negatives in January, retail volumes down 8% and shop sales down 7%. I was wondering if you could provide a comment Matt, on have you seen the $11.24 refining margin continue so far? Is it -- and also in terms of fuel margin, which typically offsets the weakness in your volumes that held up like we've normally seen? And then finally, also just can you be a bit more specific on what volumes are down 8%? Is that total Australia total business convenience retail?

Yes, sure, Dale. So look, in terms of what we've seen in January, that 8% that we've referenced is year-on-year for retail fuel volumes. In terms of what we've seen from a margin point of view, I'm sure you referenced the AIP margin data. That shows, I think, a little bit of what's happening. Clearly, we've seen a strength in crude related to a range of the geopolitical factors that are playing out in the world, which does have a lagged effect into margin, and we can now see that that starts to make its way through the system as you would normally see as we look into February. And we can also see post-Omicron volumes starting to recover nicely. But I think as I mentioned in my comments that we have seen refining conditions strength that we saw in Q4 continue into Q1 thus far. And I think that's encouraging as we look to the outlook.

Okay. And then just secondly, could you provide a little bit more color on what that $7 million cost from new energy has been? Is it just people or is there losses on like BP or other pilot projects, and should it continue I guess...

Dale, primarily -- sorry, did I talk over you? Go again.

No, go ahead.

Sorry, mate. So look, it's primarily people and resource of some sort, right, whether it's consulting or otherwise in building a team, deepening our research and positioning ourselves to launch the test and learn activities that Matt just communicated. So that's where it is. We've guided to spend in '22 in the order of $30 million, roughly, roughly sort of $10 million of that, if you like, 1/3 of that is capital expenditure.

Okay. And should we assume that sort of level of, I guess, costs ongoing in the business for some time, I guess, given that the pilot projects probably not going to turn around and start generating profit or making a return any time soon?

Look, I think the reality of the answer is it will depend on what we learn through the process, but we did commit to that $100 million spend, which, by and large, is from the launch of the strategy out to 2025. So I think that remains your best guide.

Your next question comes from Mark Samter from MST.

A couple of questions, if I can. Just the first one, back to refining margins. [ Viva made ] presentation this morning, they put up a chart about how rise include premium, particularly the back end of the year for them. And I think the impression they expect it to persist through coming year '22. Have you seen -- because obviously Singapore margins have been incredibly strong, particularly strong January. So have you been seeing similar pressures on crude premium? Or is that a reasonably, even specific phenomenon?

No, we are seeing and we expect to see when we see the oil markets, there's strong, as you see, crude premiums also increasing through the system. We saw that to some extent through the back end of last year, and we will see that through the start of this year.

Okay. Perfect. And then just want to come to the balance sheet and thinking about the deal. I obviously the balance sheet on a set basis is looking incredibly lazy again. Can we construct any similarity where you do need to tap the market for that extra that was talked about at the time of the deal? Or do we feel pretty comfortable to say the balance sheet is in a position now and the earnings outlook in a position now, and you're down a hybrid where equity is off the table?

Yes. Look, we're absolutely planning the fund is seeing through our balance sheet. If we were to a point where we -- something would need to change, I think, for us to deviate from that. Where we sit today, our intention is to minimize it and most likely eliminate the equity raise. I think we would -- we'll bump up in sort of within the first sort of -- depending on when we complete the transaction, of course, we're likely to get up near that sort of the top of our stated range, but then I'd expect we'd be sort of trading back through well within and probably to the bottom of it, certainly by the end of calendar '23.

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

Great. Just on the 2022 outlook, you haven't made any statement on exporting fuel on fuel volume guidance for 2022. Can you just kind of elaborate why it's not in this year?

What we've seen, Gordon, as we're all somewhat chasing by a couple of years of COVID that it's increasingly challenging to provide volume guidance as we see sort of the impact of surges and then impacts sort of temporary impacts, if you like, flowing through years. So we haven't provided that guidance. I think we're pretty positive in terms of some of the trends that we see coming through on the recovery side. We're seeing good performance. Greg called out the impact on our volumes in '21, including the competitor supply chain decision impacting the buy-sell. And the underlying B2B business is actually from an industrial customer point of view is performing strongly. We can see some really encouraging signs now flowing through the system from an aviation point of view. And yes, we can see some real some real green shoots with -- from a retail and a retail-linked sort of wholesale volume perspective as we see mobility increase through '22. It's hard to predict exactly what that culminates in from a volume perspective. But what I would say is that we're pretty encouraged by what we're starting to see at the moment, flow through the system.

It's Greg here. The only build to that would be Slide 10, where we've just demonstrated how the business performs in sort of more benign or good conditions. And you can see there, we did 3.5 billion liters in Australia in the quarter, of course, going into a period of Omicron coming into the new year. But in terms of the steer generally around what this business is capable of in sort of more normal operating conditions, that's not bad guide. And likewise, from an earnings perspective, there's some swings and roundabouts in there, but that's -- we're pretty encouraged by that result.

We get probably a swing factor as you start to see tourists coming in and an international recovery start to flow through the system, notwithstanding it's going to take -- that's going to be a multiyear recovery for jet volumes to get to their way back to where they were pre-COVID.

Okay. But just to summarize, no number, but directionally, it sounds you're very positive overall, cautiously positive?

Cautiously positive.

Just last question, just on F&I International, great result there. It looks like EBIT up 30% year-on-year and a record for the company. You mentioned that was due to improved performance from Gull and trading and shipping international. Gull added 9 sites. And was that the main driver of the addition of the sites that drove the volume increase there? Because you mentioned the Philippines is flat.

Yes. So there's a couple of points to that. So maybe I'll kick off and by all means, Brent, if you're on the call, you can add some color, if you like. But Gull added 9 sites. So in terms of contribution to the growth in earnings, Gull is an important part of the growth in overall international earnings. But of course, in terms of total volume, Gull is a relatively small part of volume as it pertains to international in total. So most of the volume growth in international came through the trading and shipping business, our abilities and our source out of Houston and just continued efforts to sort of -- to add capability, if you like, and expand our customer base and geography that we serve. So I don't know, Brent, do you want to add anything to that?

Not much to add, Greg, I think you're right. Volume growth is driven out the trading business as we've continued our multiyear strategy to expand on customer base. So that's probably it. Yes, I think you've covered it well.

Well, just to finish, the outlook for that for 2022 then is still similar volumes? Or are you still fairly positive on subject to market conditions?

There's 2 elements to that. Of course, we're in a process with -- to acquire Z. So we would be obviously looking to divest the Gull business, but we were -- aside from that, we'll be continuing to pursue growth in our international business. That will be our ambition. We've invested in capability. So that sort of means that some of your cost runs a little bit ahead of profit, if you like. But certainly, our ambition would be to continue to grow our international business year-on-year.

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

Refining New Zealand -- well, on the New Zealand market, Refining New Zealand put out an interesting announcement prior to Christmas on a feasibility study around green hydrogen. And I was wondering if you could give your views, just the updated views on the New Zealand market. You've made a lot of discussion on the road transport market in Australia in the pack. But I was wondering if that changes your view at all on New Zealand or whether you can tell us whether that's pretty similar glide path that you see? And I guess the second part of that question on the same theme is, could you talk about whether that gives you any ideas about how to better utilize Kurnell site?

Yes. Thanks, Scott. Look, we obviously communicated extensively around the time of announcing the proposed Z acquisition. But there are some differences in the New Zealand market relative to Australia. Obviously, a lot in they hold a lot in common also, but an aged fleet relative to the Australian fleet. I think it's roughly 15 years relative to 10, slightly over 10 in Australia and a heavy reliance on the used car market and the importing of used cars are 2 key differences that I'd call out. I think there are key differences that make the challenge of transition in the nearer term even more considerable. But ultimately, obviously, the transition is going to occur there in a similar way that it's going to be here. So our expectation is that actually the transition on the passenger side will take a little longer, but ultimately catch up with Australia after 2030. That's what our modeling would indicate. In terms of the RNZ announcement, I think it's a good example of the strategic nature of some of these refining sites, whether it's the former refining site we have in Kurnell, so the 240 hectares that we have there or equally the 240 hectares that we have up at it at the moment. Certainly, how we can utilize those sites in the context of the transition and the inherent value that those sites have as strategic infrastructure sites is very much in our thinking and in our workflow at the moment. And when we look to the capability that we're building within the business from a future energy point of view, as Greg alluded to, how we work through the repurposing of those sites ultimately is very much a topic that's firmly on our agenda.

Okay. And then on the electricity side of things that you presented on Slide 21. Obviously, you're doing small-scale trials and those sorts of things. But can you talk about a little bit more about the value proposition and how you ensure that it doesn't end up being to cash flow negative, please?

Yes. So I think, as I mentioned, we certainly see the role that we play for the customer, hence they require an integrated energy offering over time is a role that Ampol can play. We think that the charging offering is going to be an important one that starts at home is going to lean heavily on public infrastructure as well, and that's where Concord is extremely well placed and other destinations are also going to be critically important there. So given the charging offer starts at home, we think it's important to conduct a test and learn in terms of the role Ampol can play. So we are going to be disciplined around testing the value proposition and what we can bring there to answer questions like the one that you're asking, Scott. That's what we intend to do. We'll work through that in 2022 and look at -- particularly, as I mentioned, the AmpolCard, just under 40% of the card market, we see those fleet customers from a government and a corporate point of view, they're really agitating for how an offer can come together, and we think we have the right set of parameters to be able to put quite a compelling offer together to those fleet customers and really leverage that card position that we have. So for testing during '22, but that's a summary of our thesis that we're going to be testing.

Okay, good. And my last question, if it's okay. On Slide 38, you've got quite a good chart showing the Scope 1 and Scope 2 emissions from your operations. Obviously, Scope 3 is a different question. But I wonder, have you ever looked at the possibility of carbon capture at Lytton, and whether that makes financial sense?

No, it's not something that we've looked at in any detail at this point. But certainly, as we're looking into the repurposing of the site, that's quite a broad scope of work that we're contemplating.

Your next question comes from Daniel Butcher from CLSA.

A couple of questions from me. The first one, simply looking at Viva's presentation today at the same time, they won quite significant market share in petrol and diesel and lost in jet. I'm just curious whether you can sort of characterize that from what you're seeing in the market versus your own market share in those various areas?

Yes, sure. Thanks, Dan. What I would say is, as I mentioned earlier, a competitor supply chain decision in Brisbane has had a -- that's a key factor in our own Australian volumes. Obviously, then we've had in our reseller network, we've got a more extensive retail link, if you would like, for a major reseller contract in particular. And so they are the 2 main features, I would say, in terms of relative volume performance. In terms of underlying industrial B2B performance, including jet, but we're seeing that part of our business is in growth, and we've seen and continue to see some pretty encouraging signs from a share perspective.

Okay. Second one is we think debt margins and for the moment, obviously with the crude price rise, which you've talked about, diesel margins took probably a year to recover in the last cycle, which is a little bit longer than normal, from November '21. I'm just curious whether you see any reason for diesel to recover faster than that in the current environment? Or do you think it might take that long for margins to get back to where they used to be from its crude price rise in the last couple of months?

I think the right way to look at it, Dan, is that it reflects the fact that crude just kept going up. And so it keeps -- it's an ongoing cycle of flowing through to the pump. And so it's a matter of what profile you see on -- or trajectory you see on the crude price largely. And as soon as you see some stability or in fact, if you expect crude to take a step down at a point that they're going to be the key factors at play rather than these taking longer for any reason other than that.

Finally one second last one. Dale mentioned your January retails volume is down 8% and shops out down 7%. I'm just curious, is the shop sales being down a similar amount of the fuel sales, is that due to less customers coming to the forecourt? Or is that due to switching back to supermarkets with less people in lockdowns and maybe less of a reliance on local shopping for convenience.

I think it's simply a reflection of the fact that people put themselves into a pseudo lockdown as a result of Omicron. And you've seen that as we move through the peak, I think right across the economy, we saw that happen. And as we've moved past that peak, we're certainly seeing that unwind sort of pretty strongly at the moment. And there's really nothing to it beyond that. And I think again, pointing to pointing you to Slide 10 that Greg talked to, you can see that as conditions normalize and people get back to moving around as they're doing now for business from a fuel volumes and a shop sales point of view, performed very strongly.

And one final one, tricky one if I can. Obviously, have you looked at Meridian and if you're talking about moving on to electricity for the EV angle and using the customer base there. Is any sort of large pure play utility business of interest to you that might be coming -- be emerging in the near future? And but the money spent on financing that is our debt capacity that might have been more practically put towards a business sort of future-facing rather legacy business facing?

I think you know the answer this one, Dan. We're pretty clear on where we're deploying our balance sheet. We're moving through the completion of what we think is a very attractive transaction for us. It's going to deliver nice returns. And the balance sheet is well set to be able to fund that acquisition, as Greg referenced. I also don't think we could be any clearer in terms of what our priorities are from a future energy point of view, moving into 2022, including the test and land that we're going to be putting out in terms of a retail energy offer. And in response to Scott's question earlier, I sort of talked about what we're looking to achieve as part of that trial. So that's where we're focused.

Your next question comes from Joseph Wong from UBS.

Just 2 quick questions from me. The first one relates to premium fuel penetration. And we're seeing, I guess, the growth in 2021. But with crude prices lifting and board prices lifting, do you see, I guess, risk of premium fuel penetration falling given a high, I guess, gasoline prices?

My view on that one, Joseph, is we saw board prices increase very considerably through '21, and we saw an improvement in our premium share. And I think what that reflects is as the fleet continues to change over all the time as it does, increasingly vehicles that come in are compelled to put premium fuel in the tank. So there's a structural tailwind, if you like, that supports that. Of course, there always is going to be some switching when you see higher fuel pricing. But I think the structural driver, as we've seen over multiple years now is actually a pretty strong one on that point.

Great. And then my second question is just on your retail network. How many sites are still noncore or have you now facilitate the number of sites coming through, in the business? And then following on to that, how should we think about the remaining 130 sites that you currently own? Is it right that we potentially sold into the trust structure?

Joanne, do you want to take that one?

Yes, sure. So in terms of the review of our noncore sites, we touched on that at previous results and largely working through those in terms of sites that might transition still to an alternate operator or arguably would close into those sites are not best place for us to deliver growth in earnings and not an effective use of our capital. In terms of the remaining owned sites that are not part of for trust, we continue to work through those. We obviously made an announcement at the end of last year with respect to a number of sites that we would move into that arrangement. Thereafter, we're probably bringing that process to a close and you won't see any further wholesale change in sites moving into a trust arrangement.

And that's when our focus shifts, Joseph, to high-quality growth, be it the M4 and present service center redevelopments or the other NTIs that we have flowing through the system, that where we see resilient long-term sort of profitable growth being delivered out of those sites.

We have NTIs planned for the '22 year, Joseph.

Your next question comes from Mark Wiseman from Macquarie.

I just had a question on the rebranding and the EG Group sites. You've made pretty amazing progress through the second half '21 on the rebrand. And I would imagine those EG sites are probably one you can to get rebranded sooner rather than later. But our understanding was that you had to resolve the dispute on the fuel supply agreement first. Can you just provide an update on that, please?

That's spot on, Mark. Look, I think -- thanks for calling it out, because I think the team has done an exceptional job and the rebrand is landing exceptionally well with customers. I think to see at this stage of the rebrand program, the outperformance that we're seeing in rebranded sites against control sites is probably beyond encouraging. It's a real positive for our business. And I think there's a real opportunity ultimately to get the Ampol brands on the EG network. And that obviously will support our own volume performance as we look to do that. But we do need to resolve the dispute. It's scheduled for the court, date is scheduled for August and hopefully, an outcome to follow shortly after that. So that's where we're up to. But you're right, that we need to await the outcome of that court hearing before we can move forward and progress that part of the rebranding program.

Thank you. That does conclude the question-and-answer session. I will now hand back to Mr. Halliday for closing remarks.

Thanks very much for your time today. Really pleased to be able to communicate a strong result for Ampol in '21 from a safety point of view, from a financial point of view. And I think we've made really good progress on our strategic agenda in 2021. Looking forward also, hopefully, our agenda is clear to everyone in terms of what we're looking to achieve in 2022. And when we look to the outlook and the commissions we see as mobilities returning in 2022, it's with a sense of optimism that we are looking forward. So thanks for your time today and look forward to catching up with you all soon. Thanks all.

Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.