Viva Energy Group Limited (VEA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Viva Energy Australia 1H '21 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Scott Wyatt, Chief Executive Officer. Please go ahead.

Good morning, and thank you all for joining us today to discuss Viva Energy's results for the first half of 2021. My name is Scott Wyatt, Chief Executive Officer of Viva Energy. And on the call with me today, Mr. Jevan Bouzo, our Chief Operating and Financial Officer. I'd like to begin this morning by acknowledging the traditional owners of the lands on which we are collectively gathered for this call and pay my respects to their elders past, present and emerging. We'll begin the presentation this morning on Page 5 of the pack that was uploaded to the ASX this morning. And as always, we'll be happy to take questions at the end of the call. After a very challenging 2020, I'm delighted with the way the business has performed during the first half of this financial year. Although the country continues to grapple with the pandemic, there were fewer lockdowns compared to the first half last year, and we've seen good recovery in our retail and non-aviation business. The steps taken to reduce servicing costs in response to a lower sales environment have contributed to an improvement in commercial earnings, and higher sales in our retail channel have helped offset the impacts of margin compression from rapidly rising oil prices during the period. Strong production, lower crude costs and receipt of the federal government temporary production grant have seen the refining business return to profitability. Our long-term support in the form of the fuel security services payment and expected benefits from the mandatory stockholding obligations and capital contributions towards storage and upgrades to low sulfur petrol substantially improves the outlook for our refining business by reducing downside margin risk and ongoing capital requirements. Beyond refining, we also see obviously continue to make good progress on our LNG import facility and other projects aimed at transforming the site at Geelong into a modern energy hub. At the group level, we have delivered a $125 million improvement in EBITDA compared to the first half of 2020 and $144 million of free cash flow, which has led to a $44.7 million net cash position at the end of June. I'm very pleased that we're able to declare a fully franked dividend of $0.041 per share and are now in a position to return the remaining proceeds from the divestment of our stake in Waypoint REIT through a mix of capital return and an on-market buyback. Before we move into a more detailed explanation of our results, I want to touch on a few major changes to our business since we last reported. These are set out on Slide 6. I've already mentioned the introduction of a suite of measures by the federal government under the Fuel Security Package. With these measures in place, we expect the refining business to more consistently achieve cash returns above breakeven levels, with periods of outperformance when production and regional refining margins are strong. Given these changes to the refining earnings profile, we have taken a decision to determine dividends on the performance of our retail fuels and marketing businesses separately from our refining business in the future. We expect to deliver more consistent dividends from our retail and commercial businesses with dividends from our refining business depending on the operating environment across the course of the year. In order to provide more transparency on the underlying cash performance of each business, we've also updated our segment reporting so that supply, corporate and overhead costs are now allocated to the relevant businesses that they support. Costs which cannot be directly allocated or retained in a smaller corporate segment, and the rest of the presentation reflects this new reporting. Now turning to Slide 7. Let me make a few comments on our safety performance for the year. I continue to be pleased with the way that we're managing the impacts of the pandemic. We have not had any incursions of COVID within our operations and have people working seamlessly between home and office as restrictions allow. We expect there will be some parts of our operations where mandatory vaccination may be required in future. But for the majority of our operations, we are aiming for voluntary vaccination rates to reach above 90% by the end of the year. Unfortunately, we have seen an increase in number of personal injuries this year, driven in part by an increase in operational and maintenance activity, which was deferred from last year. Many of these injuries are a result of manual handling or line of fire events. And as such, we have launched additional programs to improve manual handling techniques and risk management in many parts of our business. The Geelong Refinery incurred 2 loss of containment events which have been recorded as API Tier 2 incidents. But otherwise, Geelong has performed well with high levels of plant availability following unit maintenance and continued progress on our reliability programs. As you can see on Slide 8, Geelong achieved 98% availability, which has led to strong production on crude intake of 21.4 million barrels for the half. Production has shifted to diesel and gasoline on the back of market demand recovery, and we continue to minimize jet production given the ongoing impacts to aviation from border closures. Regional refining margins remained significantly lower than historical levels, but we have seen some encouraging improvement in gasoline margins and crude premiums remain well down on last year, which is helping to reduce the refinery's cost of crude. Geelong's Refinery margin for the half was USD 6.10 per barrel. On Slide 9, we set out our retail and commercial sales performance in line with the new segmentation basis. Retail reflects all sales through our Shell and Liberty branded channels, whereas commercial includes sales to competitive retailers through our wholesale channels as well as the traditional commercial segments. Retail sales volumes have increased over the first half 2020, reflecting fewer days in lockdown and strong performance across our Alliance, Liberty and our dealer channels. Premium petrol represents around 32% of our total retail petrol sales, and we expect this to grow as we expand our retail offering to owner dealer network and new markets such as Tasmania. Commercial sales remained in line with first half 2020, with a decline in aviation sales offset by improved diesel sales through our wholesale resources and transport segments. The diversity of our commercial business has been a key driver of this resilient performance. Before I hand over to Jevan to explain our financial performance in more detail, let me touch on some of our key achievements in the first half on Slide 10. Our retail business performed extremely well during the worst of the pandemic in 2020 and has maintained this momentum in 2021. Sales have quickly recovered as state home restrictions were relaxed, and we have made good progress on the development of our convenience software with our Alliance partner and delivered network growth through the Liberty Convenience channel, which now stands at more than 90 stores. Despite the impact of aviation and marine sales from border closures, the commercial business has performed extremely well. The diversity of segments represented in our commercial businesses provides a great deal of resilience to different conditions in each sector, and we have done well to reset the business to reflect a lower demand environment. Our refining business has returned to profitability, and we have clear plans in place to invest and develop our site into a broader energy hub. In addition to the contribution towards low sulfur fuels production, we were pleased to receive up to $33.3 million in funding to develop 90 million liters of storage at the site. This is expected to improve production in import economics and increase our participation in the mandatory stockholding obligation program when it is introduced. Since listing, we have continued to demonstrate a strong cost and capital discipline, maintaining a strong balance sheet and returning the proceeds from the divestment of our stake in Waypoint REIT as promised. We are well advanced on our development of the Energy Hub and look forward to taking the Gas Terminal project to FID in 2020. Reports continue to support the need for additional gas in Victoria, and we look forward to meeting this with first gas expected from 2020. Overall, I feel very good about what we've achieved, and I'm really excited about our plans for the future. Now I'd like to hand over to Jevan, our Chief Operating and Financial Officer, to discuss our key financials in more detail.

Thanks, Scott. I'll kick off on Slide 12. As part of today's announcement, we've reorganized our reporting segments and separated the retail, fuels and marketing or RFM part of our business from refining. On this slide, I'll take a little more time to talk through the financial highlights in the new format, and then I'll talk to the changes on the next slide. The first half of this year has been really positive after a challenging 2020. Group EBITDA has increased by $124.6 million or 95% to $256.3 million. The Retail, Fuels & Marketing business recorded EBITDA of $217.6 million for the half, up 7% from the prior comparative period and underlying NPAT of $108.6 million. CapEx for the period was relatively low at $21.8 million for the RFM business as we continue to manage costs carefully given the uncertain environment. This meant we delivered free cash flow of $131.3 million for the RFM business. It was pleasing to see the refinery returned to profitability recording EBITDA of $43.8 million compared with negative $66.8 million in the prior period and NPAT of $3.3 million. Overall, group NPAT has recovered to $111.9 million for the half, up from $24.4 million this time last year. Free cash flow was $144 million, and we've declared a first half dividend of $65.9 million. The strong performance in the first half of this year demonstrates the speed at which the business can recover as lockdowns ease and activity only partially resumed. On Slide 13, we've set out a summary of the changes to our reporting segments. Going forward, we will report underlying EBITDA (RC), including actual lease expenses to better align this measure with cash generation of the business. With allocated Supply, Corporate and Overhead costs to better provide transparency of retail fuels and marketing profitability, with refinery-related costs allocated directly to the refining segment. Thirdly, we've moved the wholesale volume to independently branded operators from retail to commercial within the RFM segment, and aligns the underlying NPAT (RC) with the previous definition of distributable NPAT. This has the effect of removing the need for a separate distributable NPAT calculation. Dividends can be determined with respect to underlying NPAT (RC) going forward. And as you can see from the previous slides, our underlying NPAT relates more directly to free cash flow. A detailed summary of the reporting changes, including to the prior comparative period is set out in the appendix to the presentation. Turning to Slide 14. We've set out the segment results in a similar format as past presentations to highlight the year-on-year changes. We've included the reporting changes to the prior comparative periods in the waterfall, however, I'll focus on the first half of 2021, as I walk through the slides. Our first half retail EBITDA for 2021 was $116.7 million, broadly in line with the first half in 2020. We saw strong sales volume growth in regional Australia through our dealer-owned and Liberty Convenience outlets, while Alliance volumes averaged 58.4 million liters per week, up from 54.1 million liters for the same period last year. The strong sales growth, coupled with nonfuel income growth from convenience store sales royalties almost completely offset the impact of lower retail fuel margins due to the impact of sharp increases in oil price. This compares to the sharp decreases experienced in the first half of 2020 and oil prices collapsed and overall is an excellent period-on-period result. Operationally, we completed a site and store refresh of more than 80 Coles Express stores and saw convenience sales growth through the Alliance network of 11% relative to 2 years ago. We continue to extend V-Power premium fuels to our dealer network and saw a premium petrol penetration at 32%. Turning to Slide 15. Commercial EBITDA for the first half was $105.9 million, up $15.2 million over the prior period, reflecting solid sales growth in sectors other than aviation and marine as we cycle only 3 months of lockdown impact in the first half 2020. During the first half 2021, aviation and marine continued to be impacted by border closures. A reduction in servicing costs helped to make a meaningful earnings contribution while the appreciating Australian dollar reduced the overall cost of goods sold in specialty segments. It was great to see the company launch our first carbon neutral jet products with the inaugural flight occurring in July this year. On Slide 16, the refinery returned to profitability in the first half following the impact of a difficult and COVID affected 2020. Refining EBITDA for the first half was $43.8 million, up $110.6 million from the $66.8 million loss in the first 6 months of 2020. Operationally, the refinery reported strong production performance with plant availability above 98%, higher than it's been for a number of years. Lower crude premiums helped drive the Geelong refining margin to USD 6.10 per barrel, up from USD 2.90 per barrel in the first half of 2020. This was partially offset by the appreciating Australian dollar and increased production naturally led to increased variable operating costs. The overall result was supported by the federal government's temporary refining production payments, which totaled $40.6 million for the period. And going forward, this has been replaced by the ongoing fuel security services payment, which commenced 1 July 2021. Turning to Slide 17. The first half saw strong underlying free cash flow supporting the resumption of dividends. Working capital was up $110.4 million due largely to the impact of increases in the average crude and product prices. However, this was mostly offset by the inventory gain experienced during the period. When adjusting for these impacts, underlying free cash flow was a healthy $144 million, supported by strong cash flow in the Retail, Fuels & Marketing business. Lower capital expenditure during the half as we continue to manage costs carefully in an uncertain environment, drove cash conversion above 100% of underlying NPAT. A good segue way into Slide 18 on capital expenditure. CapEx for the half was $48.3 million relative to our guidance of $185 million to $210 million for the year, including the refining major maintenance. We deferred a significant amount of expenditure to the second half of 2021, particularly in refining as we work through the refining Fuel Security Package and major maintenance on the hydrofluoric acid alkylation plant that was deferred from 2020 is proceeding now and is expected to reduce refining intake for Q3 by 0.9 million barrels. At this stage, we are working towards our original capital expenditure plans for 2021 and as such have held guidance for the year. However, we'll continue to monitor this as the year unfolds. Turning to Slide 19. We've set out the revised dividend policy. Under the new policy, the Board will continue to target the dividend payout ratio of between 50% and 70% of Retail, Fuels & Marketing NPAT. We'll also target a payout ratio of between 50% and 70% of refining NPAT. Declaration of refining dividends will be assessed on an annual basis rather than half yearly, and if declared paid together, with any final Retail, Fuels and Marketing dividend. The change to the policy follows our review of reporting segments and means that we expect to pay a more consistent stream of dividends from our Retail, Fuels and Marketing business, irrespective of refining performance over time, which has the potential for significant upside on an annual basis. As a result of the strong Retail, Fuels & Marketing NPAT of $108.6 million, the Board has determined a fully franked dividend of $65.9 million or $0.041 per share for the 6 months ending 30 June 2021. On Slide 20, we've set out the improvement in our balance sheet from $104.2 million of net debt at 31 December 2020 to $44.7 million of net cash at 30 June 2021, driven by the strong free cash flow generation during the period. Given the balance sheet strength and our previous commitment to return the remaining Waypoint REIT divestment proceeds, today, we announced capital management initiatives of $140 million, comprising a capital return of $100 million and associated share consolidation subject to shareholder approval, and an on-market buyback of up to $40 million. The shareholder meeting to approve the capital return is planned for the 11th of October, with a view to having the capital return and share consolidation completed by the end of October. After completion of the capital return, we expect to commence the on-market buyback, which is accretive at the current low share price. When accounting for the capital management of $140 million, the company's pro forma net debt would be $95.3 million at 30 June 2021, which still provides substantial headroom for future growth. Together with the dividend declared today, the capital management initiatives, totaled $205.9 million that we intend to return to shareholders. With that, I'll hand back to Scott to cover the recovery plan progress and the outlook.

Thanks, Jevan. At the end of last year, we set ourselves a plan to consolidate and build a recovery from the impacts of the pandemic. The plan and progress on each area is set out on Slide 22. I won't go through this in detail other than to say that we have made considerable progress in every area, and this progress is very much reflected in the results that we have shared today. Looking forward on Slide 23, the pandemic will no doubt continue to impact parts of the business in the second half. After a period of fewer lockdowns, we've seen New South Wales and now Victoria into extended lockdowns and other states and territories periodically impacted from the spread of Delta. Vaccination was always our way out of this, and it's pleasing to see this now becoming a key focus of our various state and federal leaders. We expect the remainder of this year to be impacted by lockdowns but have plans in place to manage this across our operations in each of our businesses. I expect there will be continued impacts to retail, aviation and marine sales and maybe some impacts to production and refining yields depending on how domestic market demand evolves. We've learned a lot through the last 18 months on how to manage these disruptions to our business and know that markets quickly recover as restrictions are eased. We are very much looking forward to ending this year with a greater degree of certainty to further our recovery and growth plans. With this in mind, we are planning to hold an Investor Day later this year to share our strategies for each of our different businesses and how we're thinking about the broader energy transition. We certainly look forward to talking with you then. But for now, let me open it to questions.

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

The first question from me is on the commercial segment. Clearly, it was a very good outcome given the COVID impact on aviation and marine. Maybe you could just break it down for us a little bit, if you could. And in particular, how much of a drag was marine on the business, given you were cycling a fairly normal cruise season of last year? And it looks like you've done quite well in some of the specialty products as well. Is there anything in there that's sort of lumpy? Or should we think of that as being sustainable going forward?

Yes. Thanks for the question, Michael. I think, the way to think about commercial -- I mean, I think first of all, fundamentally outside of aviation and marine cruise business, the rest of the economy has continued to perform pretty strongly throughout 2020 and certainly through 2021. We've seen strong demand in resources, driven by obviously strong commodity prices and strong levels of production that's reflected in our diesel sales performance. We've also continued to see strong demand in transport and we've managed to make some good gains in our transport segments. And as I sort of touched on when we talked about last year's results, Australia has enjoyed a period now a very strong agricultural sector. That's continued into this year and we're hopeful for a very strong harvest season as well coming up. So all of that is supporting some good, strong healthy distillate or diesel demands and that, as I have mentioned, offsets the continued suppression that we see in aviation. I mean having said that, we have seen in the first half some periods where we've seen some good recovery in aviation demand. It just obviously hasn't been sustained given the fragility of the situation across the country. So beyond that, the other big piece on commercial and probably the one to focus on is obviously the earnings performance. And as Jevan pointed out, a lot of that uplift in earnings in commercial over last year has been driven by the work we've done to remove a lot of the cost out of the business to reflect a lower demand environment in aviation and marine. And so any volume offset that we've seen in those sectors has been certainly well recovered in terms of the cost work that we've done. And that's been a big factor in the improvement in commercial results in the first half. So overall, as you pointed out, really happy with the way the commercial business has performed.

Clearly, the team is doing a very good job there. Just the second question for me around the balance sheet. What sort of capacity do you have post this capital management? I mean, if we just look at headline metrics post AASB 16, the leverage isn't particularly low, but I know AASB 16 is a peculiar treatment for your leases because it doesn't capture the inflow from Coles. So I'd just be interested in how you look at it and what the capacity is. And what sort of opportunities are you looking at? Would you consider M&A in the hydrocarbon space? Or is it more about investing in future energy?

Jevan, maybe you can get to answer the first part of that question.

Yes, sure. So to talk to the balance sheet, Michael. Thanks for your question. As you say, the way the accounting standards look at leasing impacts and particularly look at the leasing impacts of the leases that we have in our business, it doesn't necessarily give a meaningful calculation or view of leverage in the business, as you rightly point out. And part of the changes we've made to segmentation today is to more appropriately align the reporting at an EBITDA and a profitability level with the cash flow generation of the business. And when you think about that cash flow generation and our actual bank debt balance sheet leverage, we're setting a net cash position now, obviously, and post the capital management, still at a pretty conservative level of net debt below $100 million on a pro forma basis. So that does still provide fairly significant capacity in the balance sheet when you think about bank debt in the context of our underlying facility that's in place with a limit of USD 700 million and the ability to leverage relative to EBITDA at, say, 1 to 1.5x within the bounds of that facility. I pass to you, Scott, to talk to some of the opportunities.

Yes. Thanks, Jevan. I think, Michael, we're obviously -- we're very focused on the development of our business here in Australia. I think we're the last 12 months in repositioning of the refining business, obviously puts that business down in a very different footing going forward. It's supporting the development of other energy projects around Geelong. And obviously, the LNG import project is most advanced. We're continuing to invest in the expansion of our retail network and particularly the Liberty Convenience has been a big contributor to the growth that we've seen in retail sales this year versus last year. And we've got one of the most diverse commercial businesses in the country, and we're looking to continue to build on that. So I think there's a range of opportunities across our business but very focused on diversification and obviously setting ourselves up to be successful in the energy transition as well, Michael. That's not to say we're not interested and continue to explore opportunities in traditional business as well because we are. But it's probably going to be a mix of those 2 things as we look to the future.

Our next question comes from Mark Samter with MST.

I'm sure someone's going to ask you if you're going to buy Gail , that won't be me to ask that question. Just keen to ask a question on the Energy Hub and obviously the LNG import terminal that's more visible than kind of easy to digest. But I guess when you look at the broader opportunity in that hub and if everyone in the country has got an aging coal plant that should shut 15 years sooner than it's slated to is desperate to build the notion of LNG hub just so they can push remediation costs back, but you've got a site that's going to continue operating for a long time in industrial heartland, et cetera, et cetera. Can you talk through the opportunities more about the broader Energy Hub? And I guess maybe the level of interest you're seeing from some of those players in the broader energy sector around it?

Yes. I mean I think it's -- the Energy Hub originally came from thinking about the strategic position that we hold here in Victoria and the role that we play, obviously, in servicing the energy needs of the state, obviously, fundamentally through the refining and import capability that we have there. And looking to really leverage that position and the existing operations we have there and the capability we have in terms of the workforce as well and the reputation within the community. So those are all real positives for the company, and that led us to think about new other projects that can support a broader range of energy needs for the state, but leveraging that capability and obviously diversifying the income in -- the income earnings stream for the site. So LNG import facilities is the most advanced. It's progressing really well. It's meeting a need -- an imminent need for gas for the state, given the declining production in the southern states of the country. And with the abandonment of the project at Crib Point, we are already now the leading project in Victoria. And most recent reports, including or from recently from the HCC demonstrate there is really -- that growing need for gas is very imminent and our project is set up to meet that need. It's progressing extremely well. As I said in my commentary, we aim to take -- be in a position to take that to FID next year and potentially have gas onstream early 2024. And we've got good support from our partners and had a lot of interest in the project naturally. It's now the leading project in the state. So we're very positive about that project and it's advancing extremely well. Beyond that, less advanced, but we've also made steps forward in terms of looking at how to commercialize hydrogen for heavy vehicle use, particularly buses and trucks. We feel -- we do feel that that's an area where hydrogen can make grounds ahead of battery electric vehicles, and that's been proved -- starting to prove the case overseas. And we've obviously formed a relationship with HYZON Motors to advance that together with customers in the future and build our refueling position in Geelong, potentially manufacturing green hydrogen as well. And I guess, starting to commercialize that energy and using it as a platform to potentially build a network of refilling sites between Melbourne and Sydney and Brisbane on the major trucking routes in time as well. So I think it's -- the hub has obviously has material businesses there today being refining, being import capability and obviously, the development of the diesel storage will improve our position there. The development of the Energy Hub I feel further diversifies and builds a new income stream and together, they create platforms to do other projects that will not only be earnings generating in their own right, but also help us develop our own role in the energy transition for the country. So that's how we think about it, Mark, hope that it makes sense?

Yes. And then might just as a quick question on the old world assets. And particularly is get your head around MSO more and just the changing nature of the market that there are other refinery closures. Do we think we're in a position where we're getting closer to more industry consolidation around infrastructure as everyone just profitability has been too good the last 12, 18 months, and we're not driven the necessity and others? Or do you think we are in a position where we can start to see some sensible consolidation in infrastructure?

I think with the -- obviously, with the closure of 2 of the 4 refineries, I think we're going to -- we're seeing obviously some changes in the traditional supply patterns of field to markets in Australia and that changes -- naturally changes our traditional supply patterns as well. So we -- I think that certainly, we are continuing to look at how -- what's the right way to supply our various markets around the country going forward and to do that in the most competitive and economic way. I'm sure others are as well. And I think we'll continue to see the sort of traditional supply patterns evolve over the next sort of 12 months or so. So what comes out of that market, I'm not sure. But certainly, it's certainly a period of transition, I think, for the sector and closure of 2 refineries is not a material change to the sector.

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

Scott, Jevan, my first question is a bit of a holistic top down, trying to get an understanding as to how you look at your capital allocation metrics. I think it's fair to say, and Jevan, you should take a lot of pleasure in hearing this, but I would suggest that Viva Energy is proving to be one of the most disciplined in terms of capital management. I mean the amount of money that you've given back to shareholders in the last 3 years has been exceptional, whether the Viva REIT transaction, et cetera, et cetera, today's transaction. I mean you've even restructured your accounts to provide shareholders with future access to cash flow in the most efficient way. I mean that's clear what you've been doing there to separate your retail and commercial businesses from your refinery. So our shareholders should be really pleased with the way you're conducting your affairs and doing the best for them. So congratulations on that front. But the reality is, and this is where the question comes. You look at what Ampol did yesterday, making an acquisition that's above their current valuation. How do you guys look at this when your stock is trading on 6 or 7x EBITDA? How do you actually look at now with your future investments where buying back your own stock will always be more accretive than actually making future investments. How do you get yourself out of that situation so that you can actually grow in the future? I mean your CapEx has dropped right back. You're incredibly disciplined. You're giving money back to shareholders. But how do you get yourself out of this cycle where buying back your own stock will always be more capital accretive than actually making an investment, which is unfortunately where the petrol distributors at this point in time are at. So how do you do that? Are there projects there that you can actually say are going to be more accretive in the near term, and I'm talking 2 or 3 years, than actually buying back your own stock? And I'm not -- that's not a criticism. It's an actual -- it's a complement. But unfortunately, you're in a bad -- well, not a bad situation, but you're in a challenged position where buying back your own stock will always be more efficient than making an investment.

It's a great question, David, which I'm sure Jevan will enjoy answering.

I mean it's interesting, David, I feel like I'll quote you 1 day on saying that being in a position to continue returning money to shareholders might be a bad position to be in.

No. It's not. It's not. I'm not saying it that way. I'm only saying that how do you actually justify making investments when you're in this position.

No, no. And I think we're in a very -- as you say, we're in a very fortunate position that we've still got quite a lot of capacity in the balance sheet. And I think now you see from the decisions that we've made around capital management today, but at current low share prices, it is quite attractive to take that option and we've moved forward with that option. There are still a lot of opportunities in the business. And I think over time, a lot of opportunities to participate in the energy transition to participate in areas that are complementary to the business that we run and leverage the strengths and competitive advantages that we have. And Scott's talked a little bit about the Energy Hub. And I think as we progress over the next few years, there'll certainly be investments that we can make in that part of our business that will still be attractive relative to returning funds to shareholders. But that doesn't necessarily mean we can't continue to return funds. And as you also rightly point out, the free cash flow of the business is pretty healthy, and that supports us particularly in the context of the new segmentation and reporting to continue paying a pretty healthy dividend over time, too. So I wouldn't rule out either, and we continue to look at all opportunities. I think over time, as we start to print some more consistent earnings in the new format of reporting, and people see that free cash flow performance more directly than perhaps they've been able to see in the past under the way we've previously reported. Over time, that may to flow through to the valuation of the company. And if that's the case, then some of those other opportunities may look more attractive relative to buying back shares. But in the meantime, we're obviously happy to take advantage of the current environment and progress with the capital management that we've announced today.

No, you're doing a great job on that front. And the case of whether you become a victim of your own success, but now all credit. Second question is on the retail side of the business. I noticed the margin coming off. I'm trying to get an understanding as to how much the industry has improved in terms of rationality. And how much -- if this is just the margin, is just unwinding a little bit of the gasoline or of the oil price high and a lag impact. And a follow-up on that question is one thing I'm looking at is the minimum mandatory stockholding as potentially a catalyst that could be supportive of future margins. Can you give a bit of an update as to where we're at with what that's likely to be, how much holding we're likely to see and whether that's going to be another boost to retail margins potentially for you and for Ampol?

Yes. I think, look, on retail margins, I think it's -- throughout -- you saw it throughout last year and again this year, it's a pretty rational market overall. And I've said many times that the underlying reason for that is the cost base across the various competitor models is pretty similar and it drives a certain margin need, which ultimately, over the long run, should play out in what you see in retail margins. Having said that, you've clearly -- you've got 2 factors that have a big impact on margins in the short term, 1 being movements in oil price and foreign exchange and the other 1 being the price cycle sort of phenomenon that works and that takes place in major cities. So you will see short-term compression and expansion of margin. And I think you've just got to look through that and continue to look through the long run. And first half of this year was punctuated by heavily rapidly rising oil prices throughout the half. Last year, it was the reverse. So if you look at the margin performance half-on-half, you can absolutely see that playing out over that period of time. So I feel it remains a very good market to be in, and it still remains very competitive, but overall, pretty rational from a retail perspective. I think in terms mandatory stockholding obligations are probably talks more to refining than anything else. And I think back to your earlier question, David, around the performance of the stock, I guess, is that I think the opportunity for re-rating of the stock still is in the market seeing the workings of the Fuel Security Package and on the refining business over time. And it's obviously the sort of long-term model has only been in place since first of July. So we'll start to see that play out over the course of this next half. And as you know, there's a number of components that will -- that feed into that one being the production payment for the refinery, the other one being the mandatory stock obligations. And that's still work in progress in terms of the design of that and we'll have to wait and see how that plays out. But should overall be supportive of the refining system, given the fact that it's ultimately a cost that sits with imports, not locally refined production. And obviously, the capital support as well that will help reduce the capital call on the site. So I think the big change this year is just the fundamental repositioning of the refining business, particularly. And we can see it. And we think that really does transform how you should think about our business going forward and maybe the market just needs to see that in the workings of our earnings over time to get more confident with that. But I certainly think that's a big change.

So it's still work in progress, the mandatory has still got a bit of work. It's coming. It's just going to be of time, is that right?

Yes. I mean the design of it is still -- we're engaged with government on that. Obviously, the commitment -- the intention is there to implement it, it's just the design and how it gets implemented.