Ampol Limited (ALD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ampol Limited Half Year 2026 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Matt Halliday, Managing Director and CEO. Please go ahead.

Thank you very much, and good morning, everyone. My name is Matt Halliday. I'm the Managing Director and CEO of Ampol, and welcome to our 2026 half year results call. During the presentation, we'll be referring to the documents lodged with the ASX this morning, including our results presentation and supporting materials. Before we begin, I draw your attention to the important notice on Slide 2. As usual, today's presentation does include forward-looking statements and non-IFRS measures, and I encourage you to read the notice carefully. I'm joined today by our Group CFO, Greg Barnes, who will take you through the financial results in more detail. And after the prepared remarks, Greg and I will take your questions. Also joining us on the call are members of the executive team who will support the Q&A. I'll start, as always, with safety. Across the group, we had no Tier 1 or Tier 2 process safety incidents in the first half of '26 and none since July '25. That is an important outcome and reflects the continued embedding of our integrated operational risk management framework. On personal safety, the picture is more mixed with total recordable injury frequency rate increasing. However, we have also introduced a serious case frequency rate to better capture cases that result in more than a week away from work, including musculoskeletal and psychosocial matters. This gives us a clearer view of where we need to focus. Turning now to the integrated platform on Slide 5. Ampol has built a leading Asia Pacific physical fuel optimization platform that leverages our infrastructure, logistics and trading capabilities and market intelligence to generate resilient earnings through the cycle. The first half of '26 really demonstrated the value of Ampol's integrated supply chain and trading capability. While the market conditions were certainly exceptional, the result also reflected the strength of our supply position, our risk management capability, our customer relationships and our ability to optimize product flows throughout the value chain. The important takeaway is that this capability has been built over many years. It comes from investment in supply optimization, terminals, Lytton, risk management and our retail networks. Therefore, the strength of the first half result is the demonstration of our integrated platform working as intended, maintaining fuel security for customers and creating value for shareholders, especially when markets are tight and disrupted. Turning to the performance overview on Slide 6. Ampol delivered a very strong first half result on an RCOP basis with EBITDA of $1.64 billion, EBIT of $1.39 billion and NPAT of $860 million. Statutory NPAT was $1.36 billion, including inventory gains and significant items. The result reflects both favorable market conditions and the structural benefits of our integrated platform, with underlying performance improved across multiple segments. Convenience Retail continued to grow. Commercial and wholesale customer relationships were further strengthened and our trading and shipping capabilities supported supply security and therefore, earnings during a period of major market disruption. Turning now to the key group metrics. Total sales volume was resilient at 12.3 billion liters and up ex net-sell. Net borrowings increased to $3.52 billion, principally reflecting the completion of the EG Australia acquisition on 30 June, including our decision to cash-settle the scrip component of the consideration. Even with that acquisition funding, leverage remained below our target range at around 1.8x, supported by the very strong RCOP EBITDA outcome and inventory gain. That balance sheet strength, together with the cash generated in the half, underpins the Board's decision to declare an interim dividend of $1.85 per share. Now on Slide 8. Given the important role that Ampol plays in the communities where we operate, a financially strong Ampol benefits all our stakeholders. We were able to maintain uninterrupted supply to customers and dealers through wholesale and retail supply chains. This includes the U-GO discount brand, which provided lower-cost fuel to customers during the peak of the crisis each and every day. We had a clear focus on supply to the regions with supply volume increasing by 30% in March, and we have expanded our partnership with Rural Aid for 3 years, backing farming families and the regions more generally. We played a key role in Australia and New Zealand in building additional national inventory levels with the support of the governments of both countries. And I'm proud to say that our people worked safely and tirelessly in the midst of the crisis, showing tremendous commitment to keeping Australia and New Zealand moving. I'll now hand over to Greg to take you through the detail of the group and segment financial performance.

Thank you, Matt. Good morning, everyone. As Matt said, this was a very strong half. In fact, for the first half of 2026, our earnings exceeded any full year result we've ever reported. This reflects the extraordinary disruption that took place and our team's ability to navigate this and keep fuel flowing to our customers. I'll take you through the group level results and then into the detail of each segment on subsequent slides. So if we turn to Slide 10, you can see the detail behind group sales volumes. Overall, group sales volumes were up 1.5% to 12.3 billion liters for the half once you look through the net-sell volumes, which will move around from period to period. Convenience Retail volumes increased 2.4%, supported by product availability and the continued expansion of U-GO. Australian wholesale volumes, excluding the net-sell, also grew by 2.9%, reflecting the consistency of our supply chain in keeping fuel flowing during this disrupted period. Z Energy volumes were lower, down 2.5% as local market dynamics impacted demand and the ability to pass through higher fuel costs to customers. Looking at product mix, middle distillates continue to represent more than 70% of our transport fuel sales volumes. Within this, jet was up more than 10% year-on-year, driven by growth in Australian and international markets. If we go to Slide 11, it sets out our group's financial performance. RCOP EBITDA was $1.6 billion. That's up 152% on the prior corresponding period, and RCOP EBIT was $1.4 billion, up 245%. As I mentioned earlier, we obviously benefited from very favorable market conditions, but we also executed very well throughout the value chain, and this is reflected in a high-quality and broad-based result. I'm going to step through each segment in a moment, but before doing so, if we look at RCOP NPAT, it was $857 million for the period, reflecting the strong underlying result. Our effective tax rate was 30% on a higher earnings contribution from Australia as well as some minor one-off adjustments. The underlying rate was about 28.5%. Lower interest expense was a result of lower debt levels prior to the acquisition of EG, which took place on the 30th of June and was net of $24 million of interest that was capitalized in relation to multiyear capital works. Statutory NPAT was $1.4 billion. This includes inventory gains, reflecting rising product and crude costs over the 6-month period. Statutory NPAT also included significant items, including costs associated with the acquisition of EG. So if we turn to each business, Slide 12 shows you the size and the breadth of the F&I EBIT result. The Lytton refinery had an extraordinary result. Margins were very strong due to regional supply constraints and the cost of importing equivalent product during the period. The result also reflects an extremely consistent operating performance, a credit to the hard yards of the team led by Michele Bardy and Stuart Symons and what they've put in to improve reliability over the period. Likewise, our sourcing and distribution businesses performed well. And you can see that in the Australian and international results. Securing term supply, ensuring supplier performance, optimization across markets and price risk management all played their part in delivering a very strong operating result and ensuring that our customers got the fuel they needed. Energy Solutions also benefited from the focus of that team on public charging following the restructure last year. Slide 13 looks at the key operating metrics for Lytton. I've already talked to the reliability of operations at the refinery, and that's reflected in the graph on the right-hand side. On the left-hand side, you can see that the Lytton Refiner Margin averaged USD 28.26 per barrel for the half compared with $7.44 per barrel in the prior corresponding period, remembering every USD 1 is worth about AUD 30 million per half. You can also see the uptick in the July margin where we also ran at full production before heading into the major maintenance efforts in August. And while we're on this slide, I just wanted to remind people of the government's revision to the Fuel Security Services Payment, or the FSSP, which took place earlier this year. My sense is this got a little lost in the noise of the Iran conflict, which followed shortly afterwards. The revision sees the cap and collar lifted from a previous range of $0.046 to $0.064 per liter, that is, and has increased that to $0.082 to $0.10 per liter. As the red line on the graph on the left-hand side shows, this moves the cap to be broadly in line with the average performance over the last 5 years. This will make a big difference to stability of refining earnings in future years. It also comes ahead of a second phase review, which we'll be looking to progress over the remainder of this year. Slide 14 shows the drivers of Lytton's earnings year-on-year. I think we have touched on the refining margins and production, which were the key drivers, already, so I'm just going to move to Slide 15. Slide 15 talks through the F&I International result. As most of you are aware, we operate one supply optimization or trading and shipping team out of Singapore and Houston. The primary role of this team is to support physical supply, sea freight, price risk management of refined products into our Australian and New Zealand businesses as well as crude oil to the Lytton refinery. The benefits of these activities is included in Lytton, F&I Australia and New Zealand results. The scale of our physical short into Australia and New Zealand and the insights we gain by being a major buyer in the region enables Ampol to derive additional value via our international business. This can come from sale of fuel to third parties, fuel blending and storage, managing time charters or capitalizing on pricing dislocation between markets. In many respects, we are unique in an Australia and New Zealand context in our ability to do this at scale within tightly controlled risk settings. And it's a source of significant outperformance in periods like what we've just seen. So while the source of the result might vary year-to-year, possessing the capabilities to leverage these market insights that we generate and adapt to changing market conditions means we can create value that others cannot. This capability has taken over a decade to build, requires little capital and supplements the benefits we see flowing through the rest of our system. Slide 16 shows the F&I Australia result. The business delivered a very strong first half with RCOP EBIT increasing to $309 million. In a period where less reliable supply chains came under pressure, Ampol was able to supply customers, including through periods of pull-forward demands. The result also includes supply benefits from term supply favorably priced ahead of the conflict and the optimization by trading and shipping of barrels flowing into the Australian market. If we turn to Energy Solutions on Slide 17, I think it's fair to say with the exit from retail electricity, we've simplified our approach to Energy Solutions and are now very focused on electric vehicle charging. Across Australia and New Zealand, we delivered 79 public charging bays in the first half, up from 49 in the prior corresponding period. Charging sessions and energy sold continue to grow, particularly in Australia. We're keeping a close eye on this market, and we're positive about the potential for EV charging demand to accelerate. The 2 charts on the right-hand side tell some of that story. We're seeing rising EV sales as a percentage of new car sales, driven by the availability of more affordable Chinese vehicles, noting that EVs represented 20% of new car sales during the second quarter of this year. And secondly, the industry has seen constraints in getting access to new sites and grid capacity to build chargers to meet this demand. This should support utilization and reward those with access to good sites and to power. That puts Ampol in a strong position to leverage its capabilities and assets in the years ahead. Moving now to our Australian Convenience Retail business on Slide 18. This was yet another strong result, extending the earnings growth that we have seen for a number of years now. Total retail fuel sales volume was up 2.4%, with growth in Ampol Foodary and U-GO. We ended the half with 47 U-GO sites and U-GO fuel volume growth was 64%. While premium fuels are down as a percentage of total fuel volumes sold, this is largely due to growth in base-grade fuels, be it U-GO growth or market share gains in a period where less stable supply chains were really challenged. Shop performance was also strong with headline shop sales up 0.4 of 1%. Excluding tobacco and sites converted to U-GO, network shop sales grew 3.5%. Shop gross margin increased to 40.1% and average basket value increased by 2.6%. Slide 19 really highlights the long-term trend of the retail performance. You can see the improvement in shop gross margin over time, the consistent improvement in average basket value despite the impact of tobacco, and the continued growth in Convenience Retail EBIT. The consistency of performance in Convenience Retail puts us in a great position as we integrate the EG Australia business in the coming months. This provides a clear pathway to scale for the U-GO format while extending the network and improving customer experience at Ampol Foodary. Slide 20 shows the bridge for Convenience Retail earnings. EBIT increased by $21.8 million year-on-year. Fuel income was the largest driver, reflecting volume growth and premium fuel mix. Shop income held broadly flat despite tobacco, and disciplined cost management helped support overall earnings outcomes. Turning to New Zealand on Slide 21. It's fair to say Z had a more challenging half, primarily due to the way the market reacted to the Iran conflict. Retail fuel volumes were lower in the half, reflecting softer conditions and the slower pass-through of rapidly rising input costs. This impacted demand and also margins as oil prices lagged the rising cost of refined fuels. The underlying retail platform performed well. Average basket value increased to NZD 15.45 and store gross margin continued to improve. You can see on Slide 22, it shows the New Zealand earnings bridge, and this chart is in New Zealand dollars. You can see we've normalized FY '25 results to remove earnings from businesses we have since exited, including Flick Energy and dividends from Channel Infrastructure. The underlying business performance highlights the demand and temporary fuel margin impacts I just mentioned a moment ago. And while the chart above is presented in New Zealand dollars, it's also worth noting that the Kiwi dollar weakened year-on-year. And as a result, the translation to Aussie dollars was impacted by approximately $6.5 million year-on-year. Okay. So if we go to our balance sheet and cash flow on Slide 23. The result is a great reminder of just how cash generative this business can be. Our record earnings converted into a healthy cash generation despite the need to carry more inventory, given the supply chain challenges our industry was facing. It's important to note, however, that these cash flows do not include the tax on earnings generated in the period. These taxes will not be paid until the middle of 2027 and will be an uplift of approximately $0.5 billion. Now the reality is we should be able to unwind working capital at a similar rate. The all-cash acquisition of EG on the 30th of June added approximately $1.1 billion to net debt. The timing of the EG acquisition was fortuitous. And given the strength of our performance during the half, we elected to cash out the scrip component of the EG consideration for $315 million. You'll also note that Ampol is carrying $148 million of additional inventory in an arrangement with Export Finance Australia to further bolster fuel reserves in Australia. Ampol takes no price risk on these categories or these cargoes, I should say, and will be compensated for the cost of carry and handling costs associated with managing the volume. As a result of all of that, net borrowings ended the half at $3.5 billion and leverage on net debt to EBITDA was 1.8 turns, reflecting the strong earnings result. And lastly for me, Slide 24. The strong earnings and cash flow performance has enabled us to declare $441 million of dividends or a $1.85 per share interim dividend. This is our largest dividend ever and is in addition to the $315 million cash out of the EG scrip consideration during the period, which you could argue is akin to a buyback. More broadly, we are committed to our capital allocation framework, that is, maintaining a strong investment-grade credit rating, paying dividends within our targeted range of 50% to 70% of RCOP NPAT, deploying capital where we see returns and growth opportunities that are on strategy, and returning surplus capital to shareholders where we do not. As the chart on the left-hand side illustrates, we have a strong track record of doing this, and you should expect the same from us in the future. So with that, I'll hand back to Matt to take you through the strategy update and the outlook. Thank you.

Great. Thanks very much, Greg. We're now moving to the strategy update. So before turning to outlook, I want to step back and explain how the result we have just walked through fits with the broader strategic direction of the group. The first half result shows the value of the platform we've been building and strengthening over several years that represents a larger transport energy business, a more resilient earnings base, stronger retail growth options and meaningful capability in supply trading and risk management. The next few slides set out how we intend to keep building on that platform. Slide 26 sets out the strategic journey we've been on. Since 2019, we've progressively strengthened the core, restored the Ampol brand, expanded regionally through Z, built capability in retail segmentation, productivity and energy transition, and then added scale and earnings quality through the EG Australia acquisition. This is a cumulative strategy where each step builds on the one before it. The result is a broader transport energy platform with a stronger, more resilient earnings base, more retail growth options, greater supply chain capability, and that means more optionality as customer energy needs evolve. The future earnings profile will be increasingly supported by Convenience Retail, U-GO, commercial fuels and EG integration, supported by a more reliable refining earnings underpinned by FSSP. We have materially grown our non-refining earnings over this period, including in this half, and that is the direction of travel which provides context for both the first half results and our priorities for the remainder of the year. So turning now to our 2026 priorities. The framework is consistent with the strategy we've spoken about now for some time: enhance the core business, expand from our rejuvenated fuels platform and evolve the energy offer for customers. Under Enhance, the focus is on maximizing Lytton value. We expect to start up the low sulfur fuels project towards the end of the year, having completed the Lytton turnaround and inspection early in the fourth quarter. And we expect the regional scarcity of the revised gasoline specification to be supportive of a quality premium. We are also progressing the FSSP review with Phase 1 complete with a substantial increase in the level at which it kicks in and Phase 2 aiming to address the conditions required to secure the refinery operations for the longer term. Acknowledging that oil markets remain tight and volatile, we will continue to prioritize supply to Ampol's key markets to provide supply security during market disruptions while maintaining flexibility to use insights gathered to manage risk and capture value creation opportunities. Notwithstanding the strong financial performance, productivity remains a priority. We are targeting a further $50 million of nominal cost reduction across '26 and '27, including annualized benefits from Energy Solutions simplification, productivity across the fuel supply chain in Lytton and U-GO in Convenience Retail. Under Expand, the focus is on EG integration and continuing our segmentation strategy across the Australian network, including premium stores, hero product development and the scaling of U-GO. In New Zealand, the priorities are to grow the convenience store business, leveraging the Z Rewards loyalty program, which will also provide learnings for us in Australia. And under Evolve, we will continue to expand EV public charging in Australia and New Zealand with a focus on Tier 1 locations with grid access. Two things are becoming clearer to us. Firstly, that connecting quality locations to the grid is only becoming more expensive. And secondly, public charging is an increasingly important part of the charging solution with attractive margins in the right locations. We will also continue to participate in shaping the policy settings needed to progress a renewable fuels industry in Australia. Moving now to EG Australia. So completion occurred on 30 June, and we elected to cash-settle the scrip component of consideration. So the final cash consideration was approximately $1.165 billion. Cash acquired was approximately $29 million, and the combined company-operated network is now around 1,080 sites, net of the 41 sites to be divested. The strategic rationale remains compelling. EG strengthens Ampol's investment case, gives us a pathway to scale U-GO and other convenience formats and provides attractive EPS and free cash flow accretion after synergies. We continue to have high confidence in the $65 million to $80 million per annum synergy opportunity, which are largely cost-related and expected to be delivered within 2 years post completion. Importantly, this is a business we know well in a market we know well. It gives us scale to expand Ampol Foodary, accelerate U-GO and improve the consistency and effectiveness of our customer offer right across the network. It is very much an extension of and a logical bolt-on to the strategy we have been pursuing for several years. We also have confidence in execution because EG builds on capabilities Ampol has already demonstrated: retail segmentation, U-GO rollout, Foodary development, cost discipline and the successful integration of Z. I'd now like to close today with a view of current trading conditions and the outlook. The first half was clearly a very strong result, but we're focused on what it means for the business going forward, the earnings quality we're building, the cash generation it supports and the opportunities we have to continue growing shareholder value. Turning now to Slide 30. We've had a strong start to the second half. Lytton's realized refiner margin in July was USD 27.11 per barrel with production of 524 million liters, so much stronger than the same time last year. Convenience Retail and New Zealand fuel margins are experiencing a period of rising landed costs, which tend to lag through to retail board pricing. The store is performing well with tobacco having stabilized and in fact, growing following some strong reinforcement activity. And ex tobacco sales are also experiencing encouraging growth. EG Australia will contribute to Convenience Retail earnings in Australia and both F&I Australia and International are up year-on-year. The FCCU turnaround at Lytton commenced in late July with start-up expected in October. Lytton will produce at approximately 70% of normal levels during this period. The low sulfur fuel project is expected to be ready for start-up towards the end of the year. Looking to the medium term, the first half demonstrated the structural benefits of our integrated value chain in navigating geopolitical disruption. We have earnings catalysts at Lytton through low sulfur fuels and the FSSP Phase 2 review and in fuel and convenience through the delivery of EG synergies. Importantly, the overarching context is that oil product markets are expected to remain tight as global refinery runs continue to be impacted by the ongoing conflicts in both the Middle East and Russia. Russia has resorted to gasoline imports and the diesel export ban due to intensified and increasingly capable Ukrainian drone attacks. The Atlantic Basin is already maximizing runs and delaying autumn turnarounds, increasing the risk of unplanned outages. And East of India, ex China, refinery runs are above June levels, but still about 500,000 barrels per day lower than 2025, with the release of trapped Hormuz barrels during June, having allowed Asian refineries to temporarily replenish their inventories. And all of this is compounding very low product inventory levels for middle distillates in particular, with limited new refining project capacity in the global pipeline and in fact, with some rebuilding required. Recent events have highlighted concerns about fuel security for all countries dependent on imports of crude and refined products. And similar to Australia, we are seeing announcements to rebuild or extend strategic reserves. This will take some time, given the tightness of the available refinery capacity and the level of current inventories. All of this points to a tight refining supply market going forward, and the forward curve for product cracks certainly reflects this, holding up much higher for much longer and shifting up between USD 10 to USD 20 between July and August for the 10 ppm diesel crack. This context is all very positive for Lytton and also a positive market dynamic for the trading and shipping capability that we have built over many years. So given these factors, we are confident about our future earnings potential with a number of tailwinds likely to persist, albeit not at the same levels as in the first half. Now on Slide 31, I'd like to close out with why we believe Ampol remains a compelling investment proposition. We are not suggesting that the exceptional market conditions experienced in the first half represent a new normal. However, those market conditions do now appear tighter for longer. What the first half did demonstrate is that the value of the capabilities we have built over many, many years continues to deliver strong value for shareholders. Our integrated supply chain, trading platform, customer relationships, retail strategy all contributed to that outcome. The first point is that Ampol has already built a structural base for earnings that is broader and more resilient. The earnings mix has shifted meaningfully over time. And with EG Australia now completed, the contribution from fuel and convenience will continue to grow. Second, while the half benefited from exceptional market conditions, the supply, trading and infrastructure capability we have built supports customers, protects supply, generates cash and creates value through the cycle. And thirdly, we have clear growth opportunities through Convenience Retail, U-GO and EG and in areas where Ampol has already demonstrated strong execution capability. We expect to see a recovery in trading conditions in New Zealand and opportunities to arise in EV charging as EV uptake steps up and in renewable fuels over time. In addition, there are further potential catalysts from supportive policy shifts for fuel resilience and the energy transition. I think it's fair to say the national strategic importance of our infrastructure, including the Lytton refinery and our trading and supply capability has, in fact, never been clearer. And finally, we remain disciplined in capital allocation. We have a strong balance sheet, a track record of returning capital to shareholders while also investing in the core business and value-accretive growth. A strong earnings backdrop as the business moves beyond its current elevated CapEx by the end of this year positions Ampol very strongly for cash distributions to our shareholders. So in closing, we feel good about the position Ampol is in. The first half demonstrated the strength of the platform we have built, which can support customers, generate cash and create additional value when markets are tight and disrupted. As conditions normalize over time, we believe investors should focus less on whether individual cyclical earnings streams repeat and more on the fact that Ampol exits the half with a stronger earnings base, stronger cash generation and more avenues for growth than at any point in the last decade. As you assess Ampol, we'd encourage you to focus on that stronger platform, greater retail scale, proven supply and trading capability and strong cash generation with multiple pathways to growth and value creation. Thank you. That concludes the presentation. Greg and I will now take your questions, and we also have members of the executive team on the line to support. So with that, we'll take the first question, please.

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

Well done on executing so well and making the most of the buoyant conditions. The first question for me is related to the outlook that you present on Slide 30. So the positive or continuation of positive conditions in refining, I guess, is fairly obvious and the charts you've got on that slide are intuitive. Does it make sense to hedge any of your exposure to refining, given where the forward curves are? And just interested to understand qualitatively what this dynamic means for the trading and shipping business as well as F&I Australia, given they've clearly benefited from this dynamic in the first half as well.

Yes. Thanks, Michael. Look, we certainly contemplate and review refiner margin hedging from time to time. We typically don't do a lot of it. We do, do some, and it's something we'll continue to review. I think part of the message we're trying to convey in delivering this result is it's obviously strong. The trading and shipping capability that Ampol has into this market is quite unique. It's been built over many years. And not only does it capitalize on tight market conditions, but refining benefits from those tight market conditions, so too can trading and shipping. And I think that's -- it's that capability that was on show in delivering supply security through periods of market disruption. But as markets remain tight going forward, I think that capability equally comes to the fore.

And then the second one for me is just relating to the turnaround in refining and how we should think about it. I mean, normally, turnaround periods aren't -- they're pretty horrible for earnings. But given the dynamic, you're still going to be making very good profits during this turnaround period. Should we just think about most of the volume impact being in gasoline where crack spreads are weaker, having normal sort of OpEx and pretty close to normal levels of middle distillate production through that period?

Yes. I think the impact is mainly in gasoline, not entirely. But as I mentioned in the comments, we'll be producing at about 70% of normal levels of capacity. And obviously, margins remain very strong, including particularly for middle distillates, which are less impacted. So it's about the right way to think about it.

Your next question comes from Uwan Minogue with Barrenjoey.

Congratulations on the record results. I just want to focus on U-GO. Given how strong economics and early performance appears to be, can you just remind us how do you actually evaluate sites for conversions? And what do you think the total size of the opportunity set could be on a longer-term basis?

Yes. Thanks, Uwan. It's Greg here. So look, we are really pleased with the way U-GO is performing is the first thing I'd note. I think we've spoken earlier about the potential of this and the 1-year kind of payback of the economics around that. We're certainly seeing economics that are that or more favorable. It got a bit of a tailwind, as you can imagine, when fuel prices were higher, consumers were very price sensitive. So we're well positioned and fully stocked. U-GO performed well when other supply chains were struggling. We had slated 60 under our own network. We see EG producing at least 125 additional sites for that. So that's a network of 185. That will take about 2 years to deliver. And that was our commitment over that 2-year time frame. I have to say when we look at U-GO, we're probably more -- look at EG, I should say, now that we've had ownership of it for 6 or 7 weeks, we're probably thinking that U-GO number will creep up over time. But of course, our commitment was around a 2-year time horizon. So to answer your question directly, it was 185. U-GO is where we expect it to be, post the integration of EG in 2 years' time.

Kate, anything you want to build on that from a U-GO point of view?

We're really happy with the progress of U-GO. Selection comes down to a site-by-site decision where we're confident that we've got the opportunity to remove operational costs and provide a value offer to customers.

Yes. So think of it as labor out net of store margin foregone tends to be a positive, and then we would then expect fuel growth from a more aggressive pricing position.

That's clear. And then secondly, a lot of medical articles recently as enforcement activity on tobacco has stepped up across service station networks. Are you seeing any benefits from this? And do you have a view on whether tobacco can actually be sustainably removed from the independent networks?

Yes. We've certainly seen, and as we mentioned in our comments, tobacco not only stabilize, but move it back into growth on the back of some stronger enforcement action, and I think also some disruption, frankly, from the Middle East in terms of supply chains. But in certain states, in particular, we've seen the enforcement be quite effective. And so that is certainly playing through the numbers in the first half and certainly, more recently over the recent probably 2 or 3 months, we've seen quite a marked adjustment.

The next question comes from Tom Allen with UBS.

Congratulations also on record earnings over the half. Just as the market interprets the potential upside for Ampol from sustained pricing in global oil and product prices and particularly how it might support Ampol's balance sheet and just provides a stronger outcomes on your capital framework, I was wondering if you could just guide a range on where you expect Ampol's leverage might finish the year, perhaps the sensitivity for us if current product prices do hold at elevated levels through October.

Yes. that's walking into a challenge for me there, Tom. What I would say as a steer is -- well, a couple of things to note. We're sitting on a reasonable amount of inventory, both price and volume at the half. Depending on what happens over the next 6 months with fuel availability, you would expect that to unwind over time. So I'm not talking specifically with year-end in mind. And you would expect generally positive cash generation in the second half that should further improve our leverage ratio below the 1.8 turns, notwithstanding the dividend. So that will be the first year I'd give you. I think when you then cast forward to 2027, what we've always had in mind and guide us is, in a mid-cycle basis, we would expect leverage to be back within our targeted range of 2 to 2.5, and we'll be aiming to land somewhere in the middle. Now that's a mid-cycle range. That implies average refining margins. And with the charts you've seen on Slide 30, I think it is, Slide 30 that Matt talked to, yes, the market is signaling that it's likely to be quite a bit stronger than that. From a sensitivity perspective, every USD 1 of refining margin uplift per annum on average is $60 million, and we don't have any major maintenance planned for 2027. So all that drops to the bottom line. And of course, we're coming to the end of our low sulfur fuels project. So you should see CapEx start to step back down towards that sort of $450 million sustainable level. So it does all set up for a very strong cash generation over the next 18 months. And as I said in my comments, if we are -- when we find ourselves in that position, our track record is pretty clear.

I appreciate that. That's clear. Perhaps just as we interpret whether or not there's a basis for conservatism on the balance sheet, just if there is the potential for higher CapEx in the medium term, I thought it was interesting in your comment in the presentation that you thought the market might have missed the outcome of the new Phase 1 support level under the FSSP, and that turned on the refining margins average to AUD 15.90 a barrel. I can see consensus estimates are not far above that level at the moment in '28 and beyond. So wondering if you could comment perhaps on the time frame, any key milestones, potential outcomes for the industry and Ampol that might come from the fuel security and resilience package that the Commonwealth government is currently consulting on, how Ampol might participate in additional fuel storage going forward, potential funding mechanisms for that. And even if there were potential for more investment in an expansion at Lytton and what it might look like?

Yes. So maybe I'll make a couple of comments to kick us off. So there's a couple of points in there. So the revision to the existing FSSP, I think, was a little bit overlooked. And I think it is just because, within a couple of weeks, the whole events in Iran started to unfold. But that is something in the order of a $0.036 a liter step-up in where the entry point is into that mechanism. It also included a revision to the calculation of the marker itself that improved in a further 0.6% -- so [ 0.6 at $0.01 ]. So it's a $0.002 uplift in what the minimum is, which I think is -- as the graph shows in the presentation, is a really healthy increase in the level of support. Now when we now roll into FSSP 2, I won't get into the specifics of that engagement and the government has put some consultation papers out there on fuel security more broadly, but you can imagine the things on our mind are the tenor of that arrangement. The arrangement at the moment is to 2030. I think by any analysis, you would say, demand for middle distillates in particular, is going to go well out into the 2040s at strength. So you're interested in -- the tenor of that agreement, you're interested in what you can achieve from -- in the events that you have a reliability event, some sort of issue at the refinery. Obviously, our peers have had a difficult time at their refinery recently. You want to make sure there's a level of protection on that basis. And ultimately, make refining as investable as possible in the knowledge that its strategic importance to the country has risen. But naturally, the nature of equity markets and the value for predictable ratable earnings increases as well and that we want to bridge that gap as best we can. So that's the focus. and the government are well aware of our views on these things. We're having very constructive dialogue. And I dare say our competitors are likely -- or the other refinery in Australia, I should say, is likely very aligned around similar sort of drivers.

And just on the storage point, Tom, so the government has released its consultation paper for storage last week. So I think there's an absolute commitment to build out more MSO and establish a national fuel reserve. I think probably obvious, but those large storage locations where you can get product in efficiently, where you can get it to market, where you can sort of cycle it, comingle it and then get it to market efficiently is going to be the way to get that in place most efficiently, most quickly. So I think Ampol's infrastructure is really well positioned from that point of view, and we'll continue to engage with the government through that consultation process.

The next question comes from Craig Woolford with MST Marquee.

Just wanted to get a feel, I like the way you positioned the F&I benefits from the situation. How do you see that going forward, not just for this 6-month period, but do you see the business as being positioned for volatility in both directions? How would you -- how should we judge the earnings base for that F&I International in a lower volatile oil price environment?

Yes. So I think -- I mean, Greg covered it in his presentation that we've built a capability that I think is a significant strategic capability that has a demonstrable track record now of managing risk and downside exposure and being able to position to capitalize on market opportunities when markets are disrupted and are tight. The second point, though, is equally important, which is when we look at markets and inventory levels and the context in refined product markets at the moment, it looks pretty tight and the curve is pricing that. So we've got the capability, and we continue to build on it. It's been built over a long period of time. And we've got pretty tight markets now, given this has played out for a while, drawn down stocks and has every prospect of continuing to drag out. So that's how I'd frame it. But we've got Brent here. So Brent, I might just ask you for any observations on that question.

Yes, I'll add just a little bit. Obviously, the role in managing inside the market means you need to be able to operate in whether it's a strong market or weak market. I think if you look globally at how profits are driven, you normally see outsized profits when there is a sudden shock and step-up in markets. However, our ability as a business is one to manage all markets. And as the presentation today says, focusing on efficient delivery and management to supply our customers is our goal. But across all cycles, we should be able to perform, but different markets do present larger opportunities and like each circumstance is different, I guess.

Okay. Second one, just on the convenience segment, it's good to hear that tobacco markets might be stabilizing. We often get into the detail of the gross margin ex tobacco, and I have calculated it might have been down slightly. Maybe just a broader question on that. Is the convenience gross margin percentage, the shop gross margin percentage likely to be stable from here? Or do you see upside, maybe it's associated with U-GO or any other mix effects?

Thanks, Craig. Kate?