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

Thank you for standing by, and welcome to the Viva Energy Australia Half Year 2022 Results 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 to discuss Viva Energy's half year 2022 results, which follow the unaudited results that we provided in July. My name is Scott Wyatt, Chief Executive Officer of Viva Energy. And on the call with me today is Jevan Bouzo, our Chief Operating and Financial Officer; and Lachlan Pfeiffer, our Chief Business Development and Sustainability 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 elders past, present and emerging. As always, and before we explore our financial results, I would just like to touch on safety and environmental performance as summarized on Slide 5. While our performance is largely in line with last year, we have seen a significant reduction in personal safety incidents in recent months, which has been supported by our group-wide Safety Day, which was held in May. We have had a strong commitment from all leaders to lift their presence in the field and to drive stronger levels of accountability and focus, and this is certainly helping to drive the improvements that we are seeing. Like many other businesses, absenteeism as a result of isolation requirements and general winter flows continues to put pressure on resourcing in many of our operational areas, but we have good support from our workforce and expect these pressures to reduce as we enter the summer months. Overall, I'm pleased with the focus we have on health and safety across the whole organization. Now turning to Slide 6. Let me now talk to the highlights in our first half results. It's been an extraordinary period with tight supply and recovering demand in many markets, driving high levels of volatility in energy markets. Viva Energy has been well positioned to navigate these conditions and has delivered a record first half result, growing sales volumes by 5% and more than doubling EBITDA to $612 million compared with the prior period. Our refinery at Geelong had a particularly strong first half, operating close to full production through a period of exceptionally high regional refining margins and delivering an EBITDA of AUD 371 million. Our commercial business has enjoyed a strong recovery with sales up 7% and EBITDA are up 55% on the prior period. Retail sales grew by 1% in a relatively soft market, which was particularly impacted by Omicron and floods during the early part of the period. The contribution from all divisions demonstrates the strength and resilience that is inherent in Viva Energy's diversified business model, with the company achieving a net cash position of more than AUD 300 million at the end of June, supporting a fully franked interim dividend of AUD 0.137 per share. The strong financial position puts us in good speed to pursue our strategic growth agenda, which we shared at our Investor Day last year. We have made particularly good progress with the Geelong Energy Hub, securing government funding for refinery and storage upgrades and commencing the development of the hydrogen service station. Independent panel hearings into the proposed gas terminal have been completed, and we now wait for government approval. Turning to our sales performance on Slide 7. I'm really pleased with the growth that we have delivered in both our retail and commercial businesses in the first half of 2022. Commercial sales volumes increased by 7% while retail lifted 1% despite market impacts from pandemic, flood and high petrol prices. Sales growth has been driven by continued recovery in the aviation sector, strong demand from wholesale segments, new customer wins and continued growth in the Liberty convenience retail channel. Slide 8 compares Viva Energy sales performance with the rest of the market and with pre-COVID demand. With the exception of aviation, we have outperformed the market across all segments and are holding market share in retail despite continued impacts in capital cities from the pandemic, which are particularly impacting petrol demand. It is unclear when and how retail demand will recover over time, but our metropolitan focused Coles Express network is well placed to benefit from any recovery and continues to perform well despite the currently softer conditions. Brand share preference based on a comprehensive survey of motorists shows that the Shell brand maintains a leading position in the market as the preferred fuel for 1 in every 5 petrol users. Turning to Slide 9, let me talk more about the refining environment, which has driven such a strong performance in this part of our business. Regional refining margins increased sharply during the first half due to several factors: lower exports from China, sanctions on Russian oil, demand recovery and reductions in global refining capacity from permanent closures and maintenance activity. While increases in crude premium for the crudes processed at Geelong have had a dampening effect, strong production and optimization delivered a particularly solid strong refining margin of USD 19.90 per barrel for the period, more than 3x this average in the first half of 2021. Let me now hand over to Jevan to talk in more detail about our financial performance.

Thanks, Scott. I'll start on Slide 11. The first half of this year really demonstrates the potential of this business. At a group level, EBITDA was AUD 612 million, up AUD 355 million on the prior period. Free cash flow was AUD 494 million, up AUD 350 million on the same half of last year. With a strong balance sheet going into 2022, we ended up with net cash of AUD 324 million in the half with no debt. Through a particularly volatile period for energy markets, retail fuels and marketing EBITDA grew 14% to AUD 253 million with NPAT up a similar proportion. This supported an improvement in the interim dividend from this segment to AUD 0.049 per share. Refining performance has been the real standout for the period, and I'll talk more about the drivers of performance and the decision on the dividend here on the following slides. Overall, it's been an exceptional half with AUD 355 million of NPAT, supporting a combined interim dividend of AUD 0.137 per share. Turning to Slide 12. We've set out the retail EBITDA bridge. Sales volumes increased by 1%, a good result in the context of record high pump prices, flooding along the East Coast and motorists continuing to work from home due to COVID impacts. The volume performance highlighted the diversity of our networks, growth from the dealer-owned and Liberty convenience network, offset lower volumes from Alliance, where more sites are located in metro areas. As you know, a rising petrol and diesel price tends to compress retail margins temporarily, and this had the greatest impact on earnings, along with some impact from the excise changes. Nonfuel income was slightly down as shop sales partially normalized after a period of strong growth during the pandemic. And we continue to deliver our marketing and brand sponsorship plans, which have no doubt contributed to the resilient market share and strong brand preference that Scott covered on Slide 8 and will set us up well for a recovery in the second half. There's also a couple of small one-offs impacting the result, which we don't expect to repeat. On Slide 13, I'm proud of the significant improvement in commercial EBITDA in the first half, rising 55% to AUD 164 million. The improvement here has been a result of lots of hard work across many different areas in which we operate and serve our customers. Volume growth and favorable margin mix on segments, where we won new business has contributed to an improvement of AUD 30 million. Short-term trading and supply chain benefits of AUD 16 million are a result of import arrangements we have in place with Vitol, which have supported us and our customers through a period of particularly volatile global energy markets, smoothing the impact of rising product premiums. A focus on being available to serve our customers when they need it most, has driven some short-term spot opportunities, which won't necessarily repeat, but have provided a win-win for both our business and our customers. Outside of these opportunities, some small improvements in margin have mostly offset our increases in costs through the period. Turning to Slide 14, refining. As Scott highlighted, the Geelong Refinery operated at near full capacity during an extraordinary period capturing the benefit of higher regional refining margins, particularly in the second quarter. This is clearly reflected in the bridge with the GRM more than tripling to almost AUD 20 per barrel over the course of the first half. Higher overall costs from shipping, manufacturing and energy were mostly attributable to producing marginal barrels of oil in a favorable environment and some disruption in supplying Tasmania from Geelong. Gas and electricity prices also rose sharply in the second quarter, and we continue to manage these through a rolling hedging program to smooth impacts of significant movements in price. Given the strong refining margins, we did not receive any support from the fuel and security services payment scheme during the period. On Slide 15, we've set out a breakdown of net cash flow for the year, which totaled AUD 223 million, and underlying free cash flow before borrowings, dividends and investments of AUD 494 million. Through a period of sharp rises in oil price, where we saw finished product prices above AUD 200 per barrel in Aussie terms, we managed the cash positioned exceptionally well. The inventory gain for the period offset the draw on working capital, highlighting the strong cash generation of both refining and our retail fuels and marketing business. Turning to Slide 16. We've set out our capital expenditure profile. Overall capital expenditure for the first half was AUD 66 million net of contributions. While a lot of capital spend will occur in the second half, particularly around major projects that kicked off late in the first part of the year, we've reduced our full year guidance to AUD 235 million to AUD 275 million, net of contributions. The reduction in guidance reflects the fact that we've taken a disciplined approach to new projects and managing costs through a period of COVID impacts on workforce and limited contractor availability, along with some impacts of phasing on large major projects, which will run over multiple years. Slide 17 sets out our strong balance sheet position. In line with our capital management framework, we returned AUD 49.5 million to shareholders during the year. And on the back of the strong earnings performance, we moved from a net debt position of AUD 95 million to net cash of AUD 324 million. The dividend announced today will see us pay out AUD 213 million in the second half and we continue to focus on the ambitious capital program we have ahead of us. As we set out in November last year, our long-term target gearing range is still in place, and we remain focused on identifying opportunities to deploy capital in line with our stated objective of adding over AUD 50 million to EBITDA over the next 3 to 5 years. As we consider opportunities to deploy funds, we continue to weigh these options against opportunities for further capital management, and we still have the remainder of our on-market buyback of AUD 22 million available. I'll now talk to the decision on the interim dividend in more detail on Slide 18. As you know, we have announced a AUD $0.137 per share dividend for the first half, which is more than 3x the dividend from the first half last year. Talking to each of the segments, the Board has determined a payout ratio of 60% for retail fuels and marketing NPAT in line with past practice, delivering a dividend of AUD 76 million in the first half, fully franked, or AUD 0.049 per share, about 15% above what it was last year. This is in line with our policy to pay consistent dividends from this segment every 6 months. The Board has also determined to bring forward the annual component of the company's dividend on refining to reflect its exceptional earnings performance in the first half. This means refining will deliver a fully franked dividend of AUD 137 million or AUD 0.088 per share, equating to 60% of its NPAT during the first half. It's our intention that the final dividend for refining will apply to its earnings for the second half before resuming to an annual assessment from 2023, consistent with our policy for refining dividends. The total dividend of AUD 0.137 per share will be payable to registered shareholders on a record date of 8th September 2022. I'd now like to hand back to Scott to cover our strategic update.

Thanks, Jevan. Before I go to the outlook for the business, I would like to discuss the progress we've made on our strategic priorities on Slide 20. As I've mentioned before, the Federal Government's Fuel Security Package materially transforms the outlook for our refining business, providing confidence to invest in major upgrades to the refinery and to progress our broader vision to transform the site into a modern energy hub. To that end, we've made significant progress to date as we seek to maintain energy security while also contributing to a lower carbon future. In supporting the energy transition, we are making inroads into reducing our Scope 1 emissions through modernizing our plant, pursuing energy efficiency projects and optimizing the use of natural gas and own gas. We are also assessing the potential for solar generation on our surplus land at the refinery. For the much larger Scope 3 emissions, we are developing new energies where we see a business case. We have commenced the development of our first green hydrogen service station with completion expected by late 2023. And in July, we ordered a 2.5-megawatt electrolyzer, which will be the largest in Australia by a considerable margin. We plan for the station to be the first in the network along the East Coast. We're also investing in processing capability for ultra-low sulfur petrol, which supports the introduction of Euro 6 low-emission vehicle standards. We have successfully secured government funding for this project and are moving through the project milestones to achieve the upgrades by the end of 2024. Looking further ahead, we are assessing opportunities for coal processing, biomass and waste streams to produce lower carbon fuels like biodiesel, and sustainable aviation fuel alongside traditional hydrocarbon refining. Our LyondellBasell Australia acquisition, which was completed during the period, provides an opportunity to divert soft plastic waste streams into Australian recycling for the first time. In regards to energy security, we remain focused on leveraging our position as a significant established energy supplier to play a major role in serving the nation's needs. We have invested approximately AUD 30 million in upgrading the refinery to optimize its monitoring and control settings over the last few years and have strategies in place to maximize production of specialty products like bitumen. Our new export line will allow us to increase production and backyard imports in other Eastern Seaboard states such as Sydney and Brisbane. We have also commenced construction of a new 90 million liters diesel storage, which will support the government's strategic storage program whilst also improving the flexibility and export capability of our products. Our proposed gas terminal in Victoria is progressing well. And in July, we reached an agreement with Geelong port to construct the required peer and berthing infrastructure for the floating storage and regasification unit. We await the outcome of the environmental regulatory process. Turning to the outlook on Slide 21. We remain optimistic about the year ahead on the back of a strong first half. In retail, we've seen volumes recover, up 5.6% sequentially in July and higher again in August as COVID cases appear to have peaked and more workers have returned to the office. Margins have also recovered coinciding with the drop in oil prices. Our strategy is to continue optimizing the network with a focus on diesel growth, the expansion of Liberty Convenience and the Coles Express Alliance, where we have a further refreshment program planned for 2023. In Commercial, demand has been -- remained robust in July and August, but this has been tempered by rising quality premium for jet and diesel, in particular. By leveraging our strong competitive position, we aim to grow earnings through our core segments of Aviation, Marine and Resources, and to maximize the integrated value of specialty products. Lastly, the refining segment continues to benefit from historically high regional refining margins, albeit they have fallen from their peak levels in the second quarter. The Geelong refining margin declined to USD 15.20 per barrel in July, largely as a result of rising crude premium and falling crack spreads. However, we are seeing signs of further strengthening as the Northern Winter and expected oil sanctions approach. An unplanned outage of the catalytic cracking unit has impacted production during August, and we estimate it has reduced the Geelong refining margin by about USD 5 per barrel for the month. However, the unit is returning to service, and that should see us well placed to maximize production for the remainder of the year. Overall, I'm very optimistic about the second half. Our retail business is well placed for strong recovery, commercial maintains -- whilst commercial maintains a robust competitive position and continued growth opportunities. While refining performance has dipped in July and August, fundamentals for the refining market remain tight as we head into the next wave of EU sanctions and as winter looms for the Northern Hemisphere. On that note, let me now open for questions.

[Operator Instructions] Your first question comes from David Errington from Bank of America.

It's amazing, Scott, how quickly a year goes, when a year or so ago, things were looking pretty grim, now today, you deliver a result with a dividend like that, life is fantastic. Jevan, probably to you, I don't know to Scott or to you, but I want to open the betting with commercial. I mean this is a business that, I mean, it's sort of like it was the second cousin, if you like, of the group. Earlier it was retail and then refining. But these commercial results just look outstanding to me. Jevan, can you give a bit more detail or again, Scott, if it's relevant to you, but that Slide 13, just looks to be quite an outstanding slide where you've got market recovery, favorable margin mix on new business wins, favorable margin mix on new business is wonderful. You're not trading away margin for that. . And then can you go into a bit of detail with these one-off trading benefits that you get? Because that's something that I wasn't familiar with given that you buy from Vitol and these on spot sales in volatile times and the sustainability of that given that we're going to go through more volatility, I would imagine in fuel supply, the opportunities have been -- being more sustained. So can you give us a bit more color on what looks to me to be one of the highlights of this result?

Thanks, David, and thanks very much for the question. I'll -- before I hand over to Jevan to talk about the particular specific question around the relationship with retail and the supply benefits there, let me just -- a few things about commercial. I think, I'm sure you'll acknowledge that we've always spoken pretty highly of commercial and tried to point out the strength and the diversity of the commercial business. So I think relative to other companies, we have probably a much more diverse business than most. The range of -- we obviously supply jet fuel and diesel and to -- in bulk to large commercial customers, but we also have a very broad specialties business as well. And that gives us, obviously, exposure to a much broader range of products and services, a broader range of customers and a broader range of segments and that, that has historically always provided quite a bit of internal resilience to sector swings. And I think this has been a period where that diversity has really shone through and probably a period where all the sectors that we have sold into have all performed pretty well, and that's evident in the results that you see in commercial. It's kind of linked a bit to our long-term strategy, is to continue to build on that strength and find opportunities to add to that business. It's a big part of our long-term strategy for the commercial business and leverage the strength that we have there and the capacity we have in that part of the business to grow even further into the future. So I guess, in short, we've always been pretty excited about the commercial business, but I think this has been a period where hopefully, it's been -- it's -- the results really show that. And hopefully, as we go forward, it will be much better recognized by the market.

To probably touch on the trading benefits for you there as well, David, and thanks again for the question, it really is, I think, a benefit of the relationship that we have with Vitol to supply us with imported products. They carry a lot of the global trading exposure for us. And it means when we have particularly volatile periods like we've seen in the first half, with sharply rising product premia, the arrangements we have with them and the impact of that is smooth over time. And so we have seen a little bit of one-off benefit from that in the context of most of the $16.4 million that we've called out there. So quite helpful in the context of those arrangements, and we will see some of that cost up flow through over time. We've also called out the spot sales that you mentioned as one-off opportunities in the first half.

It just looks to be a very well-performing business. And I'll and just I'll finish up -- just I'll finish, Scott. We're not going to have too many more unplanned breakages at the refinery, are we? This catalytic cracker, that's not major, is it? Or is it just a couple of weeks? What are we looking at there?

Yes. We agree with -- we obviously don't enjoy these outages. David, to be fair, the refineries had a long period of running extremely well, and that was evident in the first half and at a time when there was real opportunity to be had by running well as well, and that's obviously a big part of our results. We're in the process of restarting this week, and that will set us up well, I think, for the rest of the year with -- at a time when refining cracks, particularly diesel are starting to expand again. So I think we're potentially looking into quite a good period for refining. I guess there's one silver lining, David, we had an outage during the one period, during the year when margins were pretty low. So the time -- if we're going to have one, we timed it pretty well.

That's good. So it's back up and running now with cracks rising. That's what's happening. Is that the right?

Yes.

Oh, that's good. So it was down when the margin was down. Oh, jeez, you can't do much wrong at the; moment, Scott, can you?

Your next question comes from Michael Simotas from Jefferies.

First question for me is on the cash flow. It was clearly a very strong performance in light of the movement in the oil price. Can you just give us a little bit more color on how you managed to manage your working capital position so tightly? And will you be able to hold on to that cash position heading into the second half? Or was there some timing benefit in there?

Yes, I can talk to that one. Thanks for the question, Michael. I think lot of credit goes to the wider treasury and fuel sourcing teams in managing exposure. It's something that is not an easy task and particularly in a volatile period that we've had has been quite challenging. I think we've demonstrated a track record over time of pretty carefully managing our inventory exposure in the context of gains and losses there against our supply chain and working capital exposures. And there's no real one-offs that we've called out in the first half. And I think we've been able to continue the trend of largely having those 2 lines offset each other, so that we can maintain pretty strong cash conversion as a business. Something that I expect we'll continue to focus on pretty heavily going forward and agree it's -- that's been very successful through a challenging period and something we're quite proud of.

Yes. Well done on that. The second question I've got is just relating to the commercial business and the product quality premia and then maybe relate that back to the benefit you got from the relationship with Vitol during the first half. How should we think about the impact from quality premia in the second half versus the first half? I mean, others have called out some pressure in the first half, but it looks like your relationship with Vitol offset that to a large degree. So how do we think about that going forward?

Yes. It's -- I can take that one as well, Michael. It's right. I mean, we have called that out in the outlook slide as well. And we're certainly seeing higher quality premia on products. There was a lot of volatility in the first half and where you see the sort of trading benefit, supply chain benefit that we've called out. That's really a testament to the quality of relationship we have with Vitol and our ability to smooth those sorts of impacts over time. So I don't expect that we'll be able to avoid those quality premia increases, and that's why we've talked to it on the outlook side. The job at the moment is conversations with customers to pass that on where it's genuine underlying cost increase. And that's a continuing piece of work that we're very focused on.

I was just going to say, Scott, it sounds like you're in a good position relative to your competitors. So it should be a relatively easier conversation with the customers. Is that a sensible way to look at it?

I wouldn't say that these are easy -- passing on costs are easy conversations with customers. They're always obviously difficult. But we do have strong relationships with our customers and flexibility in our contracts for these sorts of periods. But I'd also go back to the point I made before, is that commercial business is much more than just diesel and jet. And a significant proportion of our earnings come from other segments and other products, which are less exposed to some of the premias that we're seeing come through on those main products. So again, the diversity provides quite a bit of internal resilience to those cost pressures.

Your next question comes from Mark Wiseman from Macquarie Group.

Jevan, thanks for the update today. Just had a couple of questions. Firstly, on the crude premia for the Geelong refinery. Could you provide just a little bit more color on crude sourcing in July and August? And just in context for the second half, how big have those crude premia been for the specific crudes that you're running? And how should we think about that?

Yes. Look, we don't provide that level of detail. But naturally, with, in a period where you've got strong refining cracks, particularly led by diesel cracks that tends to drive the premias up for diesel rich crude. So that's probably -- in terms of your question in a general sense, that's where we're seeing the particularly elevated crude premias where refineries are incentivized to maximize diesel production. And that -- as we are as well, and that obviously sends the crude premias up for those particular crudes. But that's only part of the slate and obviously, other crudes have lower premias. And we obviously always try and optimize between the -- optimize around the crudes that are available in market and obviously views we take on what those forward margins are going to look like. So that's a pretty dynamic process that we run and -- and we obviously always try and make the best decisions we possibly can with the crudes that are available. But in that general, sense, hopefully that helps you address your question.

Yes, that's great. And just finally, on the Geelong LNG import terminal as part of the energy hub. Could you just maybe confirm the expected cost of that project? Is it still unchanged? And once the approval comes through, assuming it does come through positively, what's then required prior to FID?

Yes, I am going to take the option to bring Lachlan into that question.

Just to give you a bit of an update maybe on the second half first on process. As Scott said earlier, we're now through the EES panel hearings and awaiting the report from that committee, which will then go to government. And so we're now looking to sort of the end of Q4 -- or sorry, in Q4 for that regulatory approval. Well, then we've obviously have to time that in that period to get pretty organized with the project as we publicly said, we've got great commercial customer partners into the project and Geelong port is coming as a part of the project to build the jetty, which is a significant part of the capital associated with the project. So we'll be looking to move to FID as soon as we can. It is dependent on both that government decision and then working with our customers on the timing to deliver that. But we'll be looking to do that as efficiently as possible after that approval stage. And the cost, I think that's something we need to update a bit later as we get closer to FID. As I said, the Geelong port coming in and building the pier infrastructure, they will take some of the big capital expense through that arrangement, and we will be developing -- funding the capital, which does effectively the top sides of the pier and some of the onshore facilities and the pipeline to deliver the project.

Your next question comes from Dale Koenders from Barrenjoey.

Maybe just while we're talking about LNG imports, can you perhaps give a little bit of update on where you are with customers in offtake and the certainty of sort of having the right financial terms to support the project moving forward. Is this just really difficult seeing spot LNG prices of USD 50 an MMBtu and domestic gas prices of 14 to see how the customers will support this?

Yes. Happy to take that question. And thanks for the question. As I noted before, part of that thesis for our project was always that we wanted to see customer support from day 1. And so we've had that through the participation upon ENGIE / Mitsui consortium and Vitol / VTTI and then Woodside joining the project at the back end of last year, which I think shows directionally that the demand side and the customer side of the market sees the logic, the way the LNG import terminals being placed, but also the long-term need first. In terms of the gas market, there's obviously a substantial difference between parties who are looking at term LNG as opposed to the spot pricing. Our best case is that we will provide the infrastructure and we're looking for partners who are taking long-term capacity in the facility. And we still think that, that thesis takes hold, and will play out as we get closer to FID. Ultimately, the commercials are underpinned by the gas supply position in Victoria and the Gippsland Basin coming off in the mid part of this decade and accelerating through the back end of the decade. So we think that still supports long-term capacity off-takers of the terminal who will be looking to long-term gas positions in Victoria.

Okay. And then maybe just a follow-up question, probably more for Jevan. Just in terms of the balance sheet capacity. It's an amazing strong balance sheet that you have. What are some of the sort of the competing sort of opportunities for capital that you see for use before you'd maybe consider M&A or returning more capital to shareholders? Is it the refinery? Is it centered around sort of the jetty upgrade, is it the LNG terminal? So what do you think you need to work through before you can make a better decision on how much capacity you have?

Yes, it's a good question. I think there's a range of factors we're working towards. I mean it was only November last year that we put out the strategy presentation talking to some of the opportunities that we were keen to pursue and we're still conscious of the earnings target that we set out, the greater than AUD 50 million of earnings over the next 3 to 5 years, and we're pretty focused on looking for opportunities to deliver that. . Again, I think we've got a pretty good track record of returning money to shareholders through further capital management where it makes sense to do that. And we continue to weigh opportunities against that going forward. There's a few things we've done. We've obviously brought forward the refining dividends to deal a little with the net cash position, and we've got a pretty ambitious capital program certainly through the back half of this year and over the next couple of years, and we'll be focused on delivering that, but there's a range of opportunities for us out there. There's a number of which are known, such as the Liberty Convenience opportunity. I mean, obviously, the LNG import terminal we've talked to, we'll continue to work opportunities to deploy that, and we'll keep you guys updated as we do that.

So is the second half run rate for CapEx then more indicative of sort of the run rate going forward over the next couple of years?

Yes. It's little project dependent. It's certainly a higher capital year than it has been in the past this year based on the guidance. And a lot of that is backended and focused on some of those energy hub related projects. So things like the low-sulfur gasoline, upgraded Geelong and the strategic storage tankage, which will straddle obviously next year and the year after as those projects complete. I'm sorry, it will be a bit of a heavy load in that space. And if we're able to get some new opportunities like the LNG import terminal up, then there will be some spend associated with that too through that period.

Your next question comes from Mark Samter, MST Marquee.

I've got a question for you on the balance sheet as well, Jevan, and I'm not going to call it amazingly strong. I'm going to call it depressingly strong. Even on a mid-cycle refining margin, you've got -- I mean come, by the end of the year you can generate a lot of cash for the second half of this year as well, you're going to have well over AUD 1 billion of headroom probably towards the bottom end of your gearing range. You talked about the investment in that M&A and the AUD 50 million EBITDA uplift you're targeting. But I think the message last time you guys spoke about M&A was that you're targeting kind of old-world, low-multiple businesses to get -- probably you're going to spend AUD 1 billion on 20x EBITDA businesses now or you're not going to be spending all of that headroom on M&A. Has there been any change in the thought process of what you're spending on M&A? Or should we still think there's going to be plenty of headroom post M&A?

Yes. I think we'll continue to consider opportunities. I mean, the AUD 50 million earnings target that we put out there was in excess of AUD 50 million. So there's obviously opportunity for us to deliver more than that. I hear what you're saying. I think I'd be personally pretty disappointed if we had to spend AUD 2 billion to deliver AUD 50 million of EBITDA. So I think that does give us some flexibility to consider a range of options, both in delivering that target and also opportunities for further capital management, but a little bit more time to play out as we think about those opportunities into the end of the year.

Okay. So I am, specifically I am going to be even more direct on it. Are you seeing opportunities that are even more accretive than buying your own stock back on some 5x EBITDA?

Well, I think there's a range of factors that you weigh against that, right? I mean that's certainly the obvious opportunity, and we've demonstrated that we're happy to do that in the past. And when you think about some opportunities in that space, particularly the Liberty Convenience one, which you know well and the LNG import terminal, I think there's an ability to start to diversify the earnings base a little bit more beyond traditional fuels. And so that drives value, too. But again, we've got a weigh the strategic value of that against the opportunity to undertake better capital management. And as you say, with a strong balance sheet and a lot of capacity that we have, potential to do a combination of things.

And I might just ask another quick question, if I can, on the retail results. We saw a costly split from Ampol and they had a much weaker second quarter than first quarter. And then when we look at AIP margins, they are actually pretty consistent on average through the quarter, but it looks like you've both probably underperformed industry margins, gross margins were falling during the second quarter. Is that a fair synposis in that we should be able to achieve second half industry margins to date AUD 0.23 later versus AUD 0.127 later? Should we also assume if that's the case that you probably outperformed the industry as margins are rising?