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

Thank you for standing by, and welcome to the Viva Energy Australia Full Year 2025 Results. [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 our 2025 full year results. With me on the call this morning is Carolyn Pedic, our Financial -- Chief Financial Officer; and Jen Gray, our CEO of Convenience Mobility. Carolyn and I will share the group results, and Jennifer will provide more commentary on our convenience, retail business. After a challenging first half, it's been encouraging to see the improvements in all parts of our business over the last rest of the year. From an operational standpoint, our performance has been solid. Our focus on improving safety culture within retail and maintaining strong discipline across the rest of our business has driven a year-on-year improvement in personal safety performance. This is a particularly good result given the level of construction and maintenance activity within our refining operations. Group sales were in line with last year, with Commercial delivering another record year underpinned by growth in aviation, but with all segments performing well. Retail fuel sales were relatively strong after taking account of the impact of store closures to support conversion. While convenience sales continued to be impacted by illicit tobacco, gross margins increased slightly to 39% during the year. Refining margins rebounded during the final quarter, lifting our GRM to USD 9.60 per barrel for the year, supported by the start-up of Ultra Low Sulphur Gasoline production from November. Second half EBITDA was $396 million, up 33% on the same period last year, contributing to group EBITDA of $701 million for the full year. We remain very focused on capital discipline with CapEx in line with guidance and actions underway to reduce gearing over the next 2 years now that the significant investment program at Geelong is completed. Overall, a strong finish to the year with the company providing a final dividend of $0.0394 per share, representing 60% of C&I and C&M NPAT. Turning to Slide 5. Let me touch on some of the more significant achievements we delivered during 2025. During the first half of the year, we stood up an ERP with supporting systems and processes to operate our retail businesses independently from Coles and replace legacy point-of-sale systems in the Reddy Express business. This was a major undertaking, which has driven changes to the way we do things in just about every part of our business, but critical to allowing us to begin taking further steps to unify our OTR and Express businesses. This level of change has been significant, but this is now behind us, and we are increasingly focused on utilizing new systems to improve execution of our retail offers and drive synergies. During the year, we opened 35 new OTR stores through a mix of new stores and conversions, predominantly in New South Wales and mostly over the second half of the year. This has also been a significant undertaking, and there have been some challenges driven by the pace of rollout and the capability needed to support the new offer. That said, we have learned a great deal from this early work and we will embed these into the forward program to improve execution and outcomes. The change in leadership during the second half of the year has been seamless with Jen bringing a strong focus on execution, which is already translating into improving outcomes. Jen will continue to support Teresa Rendo when she joins us in a few months. And together, they will drive momentum in the year ahead. You'll hear more from Jen shortly about our retail program. In our Commercial business, we continue to drive a strong focus on organic growth and extending our capability into new markets. We now have a presence at 98 airfields across the country and marine barge operations in the 3 key markets of Melbourne, Sydney and Brisbane. Commercial delivered another strong performance in both sales and earnings in 2025. As I mentioned earlier, we've now successfully completed a multiyear investment program at Geelong, bookended in 2025 with the 5-yearly major turnaround maintenance program and the commissioning of the Ultra Low Sulphur Gasoline project ahead of the fuel specification changes in December. This was completed on schedule and largely within budget, demonstrating the capability of the organization to undertake major projects. As we look to the year ahead on Slide 6, there are 4 overarching priorities, which will be critical to driving growth into the future and are very much within our control. With major maintenance and upgrades behind us, our refinery is in a tremendous position to run hard, maximize cash for the next 4 years through to the next major maintenance cycle in 2030. Low refining margins continue to weigh on refining at the current time, but we remain positive about the environment ahead and encouraged by the negotiations with government to review the FSSP. As mentioned earlier, we are well placed to move forward with stronger momentum in delivering on our retail strategy. The implementation of independent convenience supply chains this year will improve supply chain efficiency, better leverage supplier relationships and bring to an end the wholesale supply agreement with Coles. We will skew our conversion program to the second half of this year to give us some time for capability to be implemented and other improvements made, but continue to see the extension of OTR offer as a critical component of our long-term growth. Our Commercial business continues to extend its track record of delivering consistent with reliable quality earnings. We extended our business into new markets last year, and we'll continue to pursue organic investments to defend our business and build platforms for long-term growth. With the period of significant multiyear investment behind us, we are committed to reducing CapEx in the years ahead and improving the strength of our balance sheet without compromising our strategic growth plans. Carolyn will speak more about this later in the presentation. I'll now turn to discuss each of the businesses in more detail. I'll cover our energy businesses, and Jen will talk to the retail business with Carolyn bringing it all together with group results and capital management. Our energy businesses as set out on Slide 8 and 9, really do turn on our refining position at Geelong, our nationwide network of terminals and supply chain infrastructure and our extensive downstream supply chains to support our Commercial customers in every part of the country. We have an unrivaled and privileged position, which we have continued to build and protect. As mentioned before, last year, we entered the marine market in Brisbane, extending our barge operations to all major Eastern seaboard ports in Australia, extended our aviation network, which is now approaching 100 airfields and established the first bulk lubricants and grease import facility in the Pilbara. These are just great examples of how we continue to strengthen and grow our successful Commercial businesses. Longer term, we see considerable opportunity to leverage our refining position at Geelong and deep customer relationships to produce and distribute lower carbon fuels. We have contributed to many successful trials over the last year and are developing capability to extend production as government policy and commercialization of these new energies evolve. Turning to Slide 10, you can see the Commercial delivered another record year with sales lifting to 11.8 billion liters, driven by continued growth in aviation, but also supported by strong performances in all of the other business units. Earnings were largely in line with the last year with sales growth offset by lower overall margin mix, increased supply costs from new market entries and general cost inflation. Refining as set out on Slide 11, had a mixed year with significant site-wide power outage in January and the impacts from planned maintenance in the third quarter impacting production and with weak refining margins rebounding in the fourth quarter. I'm proud of the way we executed on the Low Sulphur Gasoline project, which was completed and commissioned in October with production starting in November. This was a very significant project for the site. And with this behind us, we head into 2026 unconstrained by project activity. Let me now hand over to Jen to talk in more detail about our convenience businesses.

Thanks, Scott. I'll start on Slide 13 and 14 with a reminder of our retail strategy. The fuel and convenience sector has significant growth potential, achieved by extending into a broader range of convenience categories, especially food and beverages aimed at people on the move. International formats set out this opportunity and some Australian players have made good progress. The OTR offer is widely regarded as the best convenience product in Australia. It's a proven offer that we intend to extend into the Reddy Express network, which suffers from underinvestment and is operating well below its potential. This is a significant opportunity we see, and we are now well placed to pursue this strategy with more momentum. Slides 14 and 15 set out our journey and the progress we've made. Last year, we completed the rebranding of our network to our standard brands, stood up systems and processes to end our transitional arrangements with Coles and began to run our business in an integrated fashion. We fully acquired the Liberty Convenience business, opened 35 new OTR stores and are in the process of standing up independent supply chains to support our various brands and offers. It was a tremendously busy year, and I'm proud of what the team has achieved. Since stepping into the CEO role, I focused on the prior -- I focused the team on the priorities ahead, strengthening our retail execution and lifting the capability of the organization. Teresa will join us in the next few months, and I'll continue to support her with our strategic agenda to build on the momentum we've established. Turning to our trading performance on Slide 16. Trading conditions improved significantly through the year with lower oil prices supporting fuel sales and strengthened fuel margins. Tobacco sales have stabilized, and we are beginning to see signs of growth in the rest of our Convenience business, which is encouraging. With the impact of tobacco behind us and our organization now ready to run, I'm confident about the year ahead and look forward to driving top line growth and continuing the extension of the OTR offer through the Express network. Slide 17 sets out our financial performance through FY '25. The first part of the bridge sets out the uplift we have secured through the acquisition of Liberty Convenience the transition of OTR's fuel supply to Viva Energy, improved cost reductions from exiting transitional service arrangements with Coles and efficiencies from consolidating retail operations. We have more opportunity to reduce costs and improve margins this year as we transition off the Coles product supply agreement and continue to improve in-store execution. The second part of the bridge sets out the underlying trading performance of the business. Illicit tobacco and general trading conditions were particularly challenging during the first half of the year. Conditions have since improved with the stabilization of tobacco sales, strengthening of fuel margins and growth in nontobacco sales and margins. EBITDA in the second half of 2025 was $123 million compared with $74 million in the first half. And we are seeing this underlying strength continue into 2026 with typical seasonal variation. We delivered 35 new OTR stores last year with 25 converted from Reddy Express. These conversions were predominantly delivered during the latter part of the year with early signs generally positive. January ex tobacco sales are up 10% on the same period last year, and our top 10 stores are up more than 30%. Fuel sales are also lifting significantly, and much of this is not related to pricing, rather an uplift in performance from forecourt works completed and an improved customer offer. As we flagged after our first half results, there are some significant impediments that are holding back performance. These include poor supply chains outside of South Australia, removal of machine coffee and the lack of Flybuys. The cumulative effect is significant enough that we have paused conversions so that we can overcome these issues with conversions continuing in earnest in the second half of the year. The pace of the rollout is something we'll continue to assess as we build plans for 2027. Looking ahead, there are 4 key drivers of growth that the team focused on. Improved retail execution is already driving results, and I will continue to ensure this is our primary focus, so the base business performs well and better supports the extension of the OTR offer. We will finish the year with an independent supply chain that supports both OTR and Express offers and allows us to exit the product supply agreement with Coles. This is an incredibly important project, which will drive considerable synergies in 2027 and largely brings our integration activity to a close. From a customer perspective, the alignment of the loyalty and digital offers will drive considerable value, improved marketing spend and efficiency and improved conversion uplift. As mentioned earlier, we will open another 40 to 60 OTR stores this year, and I'm excited about finishing the year with real momentum in this program. Let me hand over to Carolyn to discuss our financial performance.

Thank you, Jen. So turning to Slide 21. Group EBITDA on a replacement cost basis was just over $701 million, down 6% year-on-year. FY 2025 reflects the peak year of retail integration and capital intensity across the group. Performance improved meaningfully in the second half, reflecting stabilization in retail execution and operational momentum as major system transitions were completed, as Jen mentioned. Underlying net profit after tax on a replacement cost basis was $184 million, reflecting the EBITDA outcome as well as higher depreciation and finance costs following the recent acquisition of Liberty Convenience and a full year of OTR following its acquisition at the end of Q1 2024 and higher average debt levels during the year. 2025 significant items totaled $654 million pretax the large majority of which was noncash. The largest item was a noncash impairment of $556 million relating to retail sites. This reflects site level assessments from an accounting standards perspective. There is no impairment at the Convenience and Mobility business level. It primarily relates to a reduction of the lease right-of-use assets for certain sites during a period of softer trading conditions. It was calculated by applying earnings in line with FY '25 performance, which we regard as a low point in retail's earnings cycle and then applying conservative growth rates before discounting the results and cash flows. Accounting standards require that the calculation does not incorporate future earnings improvement initiatives or management actions of Jen's platform. As a result, this impairment should not be interpreted as a reassessment of the long-term value or strategic rationale of the retail business. We also incurred $97.5 million of transition, integration and restructuring costs. Around $67 million relates to the implementation of replacement IT systems and platforms required to support an integrated operating model with the balance reflecting rationalization of corporate functions following our multiple acquisitions. These costs represent the final stages of a multiyear integration program and are expected to reduce from here. The last item to call out on this slide is the $29 million of OTR prior period impacts. Following the integration of OTR finance into Viva's control environment, we identified that certain inventory costs have historically been capitalized when they should have instead been expensed. These items were required to be expensed in the FY 2025 statutory financial statements. Now as these costs related to prior reporting periods, they have been treated as significant items and are excluded from the FY '25 underlying earnings. Of the $29 million, $18 million relates to pre-completion periods. We acknowledge that there was frustration that we did not provide FY 2025 EBITDA guidance in the Q4 operating update. However, given the ongoing assessment of these items in conjunction with our auditor, we did not believe it was appropriate to provide guidance until the FY '25 numbers are finalized. Now turning to Slide 22. Operating free cash flow of $542 million included $105 million of one-off costs, which largely corresponds to the transition integration and restructuring activity I've mentioned. You can see the bridge from EBITDA to net free cash flow, the impact of capital expenditure on multiyear projects, the acquisition of Liberty Convenience under the investments category as well as the integration costs we talked about. When we adjust for these items, underlying free cash flow is positive. Given we report on a pre-AASB 16 basis, EBITDA remains a good proxy for underlying operating cash flow generation. Now on Slide 23, I'll talk to CapEx. So 2025 was a peak CapEx period as we've discussed before, as we completed the planned major turnaround of the Geelong Refinery and commissioned the Ultra Low Sulphur Gasoline plant. Looking forward, we expect our CapEx to moderate meaningfully. In 2026, we expect total CapEx to be $350 million to $400 million, depending on the pace of conversions, as Jen outlined earlier. This will support improving net cash flow and strengthening our balance sheet. And as you can see on Slide 24, net debt closed the year at $2.1 billion and gearing in respect of total net debt to EBITDA was 3x, and we continue to target gearing towards 2x by the end of FY '27, and I'll provide more color on this next. Meanwhile, term debt-to-EBITDA gearing reduced to 1.4x within our target range of 1 to 1.5x, and liquidity remains strong at approximately $0.9 billion. Slide 25 sets out our capital management framework and our priorities. We are focused on maintaining safe and reliable operations, a strong balance sheet and returning dividends to shareholders in line with our policy. Additional cash flow can then be directed to growth projects and additional returns to investors after satisfying these key pillars. Our key priorities ahead are outlined on the slide and include lower CapEx in FY '25 by approximately $100 million to $150 million following the successful delivery of key projects at the refinery, improving net working capital with a particular focus on inventory as we stand up our new convenience supply chain, improving earnings by reducing earnings volatility from the Geelong Refinery following ongoing renegotiation of the FSSP Phase 1 and improving Convenience and Mobility earnings through the various initiatives outlined earlier. Also, we've flagged that we're reviewing opportunities to divest surplus land. These initiatives will set us up for a strong balance sheet with management continuing to target gearing towards 2x, as I mentioned earlier before, by the end of 2027. Now moving to Slide 26. The Board has determined a final fully franked dividend of $0.0394 per share, and this represents a payout ratio of 60% NPAT (RC) from the Convenience and Mobility and Commercial and Industrial segments in the second half. Consistent with our dividend policy, the E&I segment is assessed on a full year basis. With E&I recording a net loss of $14.4 million at the NPAT level in FY '25, dividends for the full year represents 60% of group net profit at the midpoint of our policy range between 50% and 70%. Final dividend will be paid on the 31st of March 2026 to shareholders on the register on the 13th of March 2026. Our dividend reinvestment plan remains active with 44% participation in the first half 2025 dividend. Eligible shareholders can reinvest their dividends directly into shares at a 1.5% discount. The dividend reinvestment plan continues not to be underwritten. I'll hand back to Scott to provide an update on the outlook.

Thanks, Carolyn. As I mentioned at the beginning of the presentation, we finished 2025 with strong momentum in our retail business, the successful completion of our refining investment program and another solid and respectable result from our Commercial business. I expect 2026 to build on this platform, further growing our retail business and improving cash generation from our refining business in particular. The outcome of the FSSP review will clearly be very important in this regard. Looking to the longer term, let me conclude on Slide 29. We have an outstanding business, which has a strong infrastructure-backed position and clear strategies to drive long-term growth and shareholder value. We are already the leading supplier of energy and specialties in our markets and are now well on the way to building the leading convenience business in Australia. With a lower capital cycle ahead, coupled with earnings growth from our strategic agenda, we are also well placed to strengthen our balance sheet, and this will clearly be a clear priority for the year ahead. On that note, let me hand over to you now for your questions.

[Operator Instructions] Today's first question comes from Michael Simotas with Jefferies.

Well done on the cash position. First question from me on the outlook commentary. Just trying to understand a little bit better the messaging around convenience, retail into FY '26 and then '27. There's a comment, Scott, in your shareholder letter, which suggests that FY '26 growth for convenience, retail will only be modest. Should we think about that as relative to the '25 year? Or does that comment relate to an annualized second half of '25 base given the first half was so low?

Yes. Thanks for the question, Michael. We -- you'll notice in the bridge for retail that we have specifically focused on the second half performance relative to second half '24. A few reasons for that, Michael, one is first half was really an outlier for us. It was a particularly challenging market and obviously a period of intense transition for us as well. 2020 second half by comparison is a much cleaner half. It has obviously, a full period in both '25 and '24 of OTR performance and a full half for Liberty Convenience as well in terms of a full acquisition. It's a more constructive trading period, which reflects how the market is trading more recently. Tobacco stabilized. So for many reasons, it's -- I guess a cleaner period to use as a baseline heading into 2026. Now that said, it's obviously more a seasonally better half than the first half typically and the retail fuel margins through the half are elevated compared to previous year. So you probably need to make some adjustments to that when you think about 2026. But certainly, I would -- certainly, I am thinking about the second half as being a more representative reflection of the underlying performance of the retail business now.

Okay. Yes, that's clear. And then the second question I've got is on shop margin, and then I just have a quick clarification as well. So if we sort of do some rough maths on what your shop margin would have done if not for the tobacco mix shift, it looks like you've given up maybe 200 or 250 basis points of gross margin on the shop in the '25 year. Now '25 year was a transition and it was a tough year for lots of reasons, but that equates to $25 million or $30 million of gross profit and EBITDA. Can we get that back?

Yes, great question. I might give Jen the opportunity to talk to it. But what I would say, before I hand over to her is that I think we have left money on the table in terms of shop margin. We have -- certainly in the first half of the year, we certainly suffered from not having good visibility or the right level of visibility across our convenience business as we stood up ERP systems and moved off legacy. And I think that hindered our responsiveness to what was obviously a high inflation period as well and then partly certainly managing store margins accordingly. That improved -- has improved a lot since then, obviously stabilizing systems and now having that largely behind us. The impact on tobacco and the knock-on impact to nontobacco categories just from having less visitation is also something that we have needed to manage and probably not managing as well as we should do. But from a visibility perspective, we're down -- I think really starting to get on top of that as well. And then finally, I think just generally, wastage and shrinkage has always been a component of convenience stores. It's been elevated over the last year. We've got work to do to get on top of that and get that back down. So I think they're all -- we can definitely do better than what we delivered in 2025. We have been getting better through the second half of the year, and I think that will carry through into 2026 as well, Michael, it's an opportunity for uplift just by executing better essentially, which is one of the key priorities that Jen has been bringing to the business. Maybe you've got some reflections.

Yes. I think the other opportunity for us as we progress through 2026 is the transition of our supply chain, which will move our product supply in the Reddy Express network away from the transition arrangement with Coles, and we will have those relationships directly with our supplier base. That allows us to actually bring our OTR purchasing and our Reddy Express purchasing together and leverage that with suppliers for the first time. It also means the flexibility of bringing new products to market and being able to innovate in that space has materially changed from where we are today. So I think that will also help improve our store margin and our opportunity to grow top line sales.

And then just a quick clarification. I just want to make sure I'm interpreting the significant item around the capitalized inventory correctly. If I use the '25 year as a guide, does it effectively mean that, that roughly $100 million earnings base when OTR was acquired, was overstated by about 10%?

Yes. Thanks, Michael, for that question. So you shouldn't just use the run rate that we've got in 2025. The prior completion period was like a multiple period impact. So yes, that's just not the right way to look at it.

Okay. Can you give us a guide on what the underlying earnings were when you bought the business?

For '26, Michael, or '25? Sorry, '25 or '24?

I'm more sort of thinking about that roughly $100 million of EBITDA the business was doing when it was purchased, just so we can sort of think about that as a baseline that we can get back to and then grow on top of that.

Yes. So the pre-completion number that we called out in the deck is about $80 million, Michael, which goes back a couple of years. That would be how to think about that.

Yes, that's right. It's a multiyear impact. So you should just think about it 1 year or 2 years.

I think also, I think probably way to think about it, Michael, too, is because it wasn't recognized and it was -- therefore, wasn't recognized in the categories in the stores in which it was impacting results. I think if you replayed it and with visibility, we would have -- well, the business would have responded differently to that situation and you probably would be managing margins a bit differently as a result, right? So I think it's -- and having done the reconciliations now and understood the impact of the way this was treated, we will certainly respond differently in store in terms of how we price for those particular categories to recognize that cost that we previously weren't recognizing. Does that make sense?

No, it does. You weren't quite earning the margin you thought you were earning, I guess.

Yes, completely. So you kind of get -- obviously, you're comfortable with that in reality to those stores and categories that were affected, we shouldn't have been, right? It will drive a different management outcome going forward for those stores and categories.

And our next question today comes from Dale Koenders at Barrenjoey.

I just kind of wanted to dig more into this sort of outlook for retail going forward. In the waterfall chart for your fuel growth in second half '25 versus second half '24, there's quite a large step-up in fuel margin, and you said there's seasonal benefit. Have you done anything to change your pricing strategy? Like will any of that fuel benefit be sort of kept and sustained going forward?

Jen, do you want to...

I think, yes, we have, and we've seen it continue into the beginning of this year as well. The market has certainly supported that increased fuel margin as well to a large degree. Our fuel pricing strategy is in line with the market and ensuring that we remain competitive with the market as part of our core offer to customers. So the market supported it where the market continues to support it, obviously, we will continue to optimize that where we can.

I think just to add, Dale, I think the management -- our management of fuel generally is in really good shape. I think we have continued to -- the team there has done a great job. We, as always, trying to be quite dynamic in how we price fuel and alongside the broader offer that we have in store and every store and every market is different, and I feel we're managing that extremely well. And then from a market perspective, it was quite encouraging for quarter 4. Obviously, it was with the uplift in strengthening of margins. Now obviously, that was supported a bit by cost of product decreases through the period as well. But I think generally, it's been 18 months, 2 years now of significant cost pressure in this retail, convenience sector, but driven by obviously declines in tobacco and high inflation, particularly impacting wages as well. Now that these are costs that impact everybody. And so I think at some point, you would have expected those cost pressures to lift margins and particularly in fuel. And I think we're starting to see that follow through in terms of market pricing generally as well. So yes, it was an exceptional period. I think it's -- but it's carried through into this year. And I think because of those cost pressures, we would expect some upward pressure on margins to continue through the year, Dale.

Are there any other one-offs worth calling out, Scott, when we think about second half, minus a bit of seasonality times 2 for an outlook for '26? Are there any cost duplication on supply chains or any benefits from the OTR conversions that you think we should be banking in or it's -- be conservative and wait for outperformance on that?

I think we've still got work to do on improving the cost base of the business, not just retail, but the whole business, particularly just given cost inflation, cost pressures generally. So that hasn't finished. I think we've done a lot. You can see that in the bridge around above store cost performance. Some of that's within retail, some of that's contribution from corporate overheads as well. So -- but there is more to be done though for sure. I think I just remind -- I mean this year is another -- there's a big transition activity happen this year with the transition of supply chain. So we want to make sure we support that change, and we do that well and seamlessly from a customer perspective. So that probably is the overriding priority in the year ahead. And with that behind us, I think that in itself will allow us to move within further consolidation of retail activity across the businesses, continue to try and do more -- do things more proficiently. Obviously, get benefits out of the supply chain itself, and that's more -- that's probably going to be to leverage that more fully once that project is completed, so back end of next year into 2027.

Okay. And then just a final question just on refining margins. Can you provide any comments on sort of Ultra Low Sulphur Gasoline upgrades? Any benefits you're seeing? And your competitor or your peer has reported margins of $8 a barrel, low $8s for January. Is that consistent with what you're seeing? Or is Ultra Low Sulphur giving you a benefit?

It's -- so we're still learning to run the machine with the equipment, it's still brand new. And so I think we're not getting the full benefit out of it yet. But obviously, we've been operating it since November, and we're certainly getting more familiar with it and refining how we operate that within the configuration of the whole refinery. So I wouldn't say that we're seeing significant benefit from it yet, but the potential is still there. And certainly, the market is pricing in Low Sulphur Gasoline at anywhere from USD 1 to USD 1.50 a barrel. So that's the opportunity. We've got to -- and that we have and we will realize that in time, Dale, as we go forward. I think for January, it's been a challenging start to the year from a refining margin perspective. We haven't called out January's numbers, not just simply because we don't want to form the trap of doing monthly refinery margin reporting because things can move around a lot over a quarter. So we'll certainly report back on the quarter. But yes, acknowledge it's been a difficult start to the year. Refining margins are below breakeven for January, encourage -- improving a bit into February. And I do think that will continue through the course of the year. I think January has been heavily impacted by a period of very strong production globally in quarter 4 with obviously very high attractive refining margins and good availability across the world. So that's -- the market is sort of absorbing all of that. But I think in the outlook ahead, I think we still see that it should be a reasonably constructive environment, albeit impacted a lot by what's happening geopolitically. But I think ultimately, real focus for us is completing the review with government on the FSSP. It's really critical that, that gets updated to reflect current cost of doing business and provide the support that's necessary to underpin refining operations. That's near-term focus for us, and that's probably more material right now for the current refining -- the current refining margin environment.

And our next question today comes from David Errington at Bank of America.

Scott, my question is, I suppose it's a fair bit of topic today, the transition, if you like, of supply chain and systems. Now I put my hand up, I underestimated how difficult this was going to be. And I think probably you guys have to put your hands up, too, and say that you probably underestimated how difficult it would be. But where my question is, is Slide 19 and listening to your answers, I'd like to think that we're past the worst, but I'm not sure we can say that with your transitions with supply chain, with your point of sale, with your ERP. Can you go into a little bit more detail as to what you need to be able to do this year so is that hopefully, then we've got clean air? And can you bring to life a little bit because supply chain transition and managing the transition and managing the impact for the -- I mean they roll off the tongue really nicely, but all of us underestimate what actual work needs to go in before you can actually get a shot at this. Can you go into a bit of detail on Slide 19, please, is just what you need to be able to do before we can get to the point where we can start factoring in the upside from this wonderful opportunity that you've got? Because it looks to me this transition is just crippling you in terms of being able to get your operations right so that you can actually get this offer in place.

Yes. I mean I'll talk about the ERP transition. I'll let Jen talk about the supply chain because that's obviously front and center for her at the moment. But certainly, look, I mean standing up an ERP, even one that was ultimately modeled off the OTR ERP that was in place was still a significant undertaking to get it done in the period of time that we had to do it, which was obviously a hard stop with the transitional services arrangements that we had with Coles expiring. And so that's certainly -- I mean I think the team did an amazing job pulling that together in such a quick time. Other companies won't -- are still -- retail companies are still trying to disconnect themselves from previous owners with these sorts of systems. So we've -- on that front, I think we did a great job. And obviously, with time pressure and it probably -- it did impact -- and we had some teething issues with it. And I think probably the biggest one, which was just the visibility of management information necessary to run the business through that time. That was probably, I think on reflection and looking back on it was unexpected and more impactful than we probably anticipated. So we -- obviously, we've recovered from that. The systems are now all in place. I would acknowledge we're still running 2 versions of it. We've got an ERP for OTR and ERP for [ Reddy Express ], and we've still got work to do to bring those together into one instance. But that's now at our leisure. It's not schedule-driven. We can just do that methodically and work it through. Systems are stabilized. We're start getting information that we need to run the business well. That should start to reflect in the results that we're delivering. So -- and the business, that's all stabilized. So I think, David, you can rest assured that, that's behind us. And now the focus is now on the next step, which is the standing up of supply chains and moving off the Coles product supply arrangements towards the end of this year. So that's one we have to get right. We have -- that has been pushed back by 6 months to give us the time. I think we -- when we sat down and reassessed we were up to the middle of the second half, that was one area that we really felt we needed to take more time. We talked with Coles, and we've agreed an extension for 6 months to give us that time. So that should give some comfort that we're not putting ourselves under the pressure which where things can go wrong, but still a lot to do, and I might just hand over to Jen to talk a bit more about that.

Yes. So maybe I'll give you a little bit more color on what our supply chain transformation looks like and quite a large part of it has already been done. So as part of coming off the Coles TSA arrangements, we've already rolled out to the entire Reddy network, a new order fulfillment module, Blue Yonder. So that will determine how we order all of our stock. Range alignment has happened across both the brands. So we now understand what offer we'll have in common across both OTR and our Reddy network. The team are in the process of closing out harmonization of supplier terms. So being able to interact with our suppliers as a single entity rather than as 2 separate entities. That work has been largely completed. And what's happening now is the standing up of 4 distribution centers, all being run by third parties. So we have one in Victoria, which will come up during May, followed by one in Queensland and one in New South Wales and then one in WA. They're run by third-party providers, and those third-party providers will also provide the logistics to site. I think it's worth noting that we already run this model in South Australia. So we have experience in running this type of model, and we understand the sorts of returns we can achieve. But we don't underestimate the difficulty of this transition at a store level, which to Scott's point is why we have really taken the time to make sure we deliver this with excellence. So it is challenging, but we believe we can do it.

It seems then inherently sensible to push back the rollouts to the second half. Because when I look at Slide 18, Jen, the performance of the store uplift is fantastic. I mean you look at your top 10 stores, you get a 32% uplift in ex tobacco sales, you get a 60% uplift in petrol. I mean that's an amazing. So it shows that the concept works. It just means that you just have to -- it shows -- so the excitement is there, but you've just got to get your act together on the back end. Is that a fair prognosis? And hopefully, not putting words into your mouth, if you work really hard through '26, '27 should be fantastically optimistic for the company. Is that a good way of looking at it, Scott? Should we get that far ahead of ourselves? Because that's what it sounds like to me. When I look at those charts, I mean 32% uplift for your top 10 stores and 59% uplift in volume, that's phenomenally bullish.

Yes. No, no, completely. I mean the fuel uplift -- I mean this was done -- this is January versus January. So that was the cleanest month period we had to compare because we did a lot of conversions late last year. So -- and January is a quiet month for fuel, right? And so -- and we weren't pushing pricing particularly hard in these conversion sites. So it's a genuine uplift in performance driven a lot through the upgrades to the stores. So that is super encouraging. But the reality is when you get -- reflect on customer feedback and the impact like -- I mean customers are turning up and we're not offering them for Flybuys because we hadn't had the commercial arrangements in place with Flybuys to offer that. So that's been taken off them, and that's a big component of what the old Express business. We've taken away machine coffee and given them barista coffee, which is an important part of the offer, but it's a big change for customers to go through, and it doesn't suit everybody. So we have to recognize that. We've had the store shut for 8 weeks and fuel comes back quite quickly, but shop is always a bit harder to -- because people change their patterns, so we've had to drag that back. And so if we can improve all those execution things issues, imagine how much better it will do when we get to the next wave of conversions, right? So that's a bit why we're just taking a pause now to get those things right, particularly Flybuys. I mean that's just the sake of a few months to get that implemented so that when customers do turn up after a conversion, that bit hasn't changed. So it's worth taking the pause to get that right and then resetting and getting after it. So yes, 40, 60 conversions might sound low relative to what we've been saying, but it's kind of back ended to the back end starting at the end of quarter 2 through the rest of the year. So it's probably going to get done over about 6 months. So it's still a large conversion and program over that period. It includes new store openings as well. So there's still a lot of activity happening to take OTR across the rest of the country this year, even with what looks like at the headline, a lower level of conversion is actually still quite a lot given the way we're facing it.

I would just add that supply chain is critical to getting these stores up and running. Our stores in New South Wales are being supplied out of South Australia at the moment. So once we have that DC stood up in New South Wales, the efficiencies were removed from our offer are extraordinarily material.

Yes, you have no idea how frustrating is to go to a new store that we've opened and see stockouts on stores just simply because that supply chain just doesn't work well, right? It's too far.

Yes. And it drives higher wastage, obviously. If you're moving stuff from South Australia, you lose a few days of life while you do that. So it will make a material difference to the performance of those stores.

For some reason, David, people in New South Wales don't like buying stuff that's made in South Australia and go figure it out.

Quite right, too, Scott, quite right. But I'm looking forward to '27, it should be a terrific year. So bring it on.

And our next question today comes from Bryan Raymond at JPMorgan.

Just a follow on from David's question actually around some of those uplifts you're seeing and not to be glass half empty here, but I'm just trying to look at the sort of the top 20 -- the total of the 25 versus the top 10. I'm just trying to understand the other 15 that make up that 25. And if you take a simple average, it implies ex tobacco sales are down mid-single digit, which doesn't make a whole lot of sense to me on conversion and then fuel volumes up about mid-single digits. So I just want to understand if you've found quite different experiences in the top 10 versus the rest, if there's some learnings from the rest that you're applying going forward as well. Or if my math is not quite right because of some apples and oranges comparisons I might be making with the limited data we have.

It's a good point.

I think the first thing I'd say is a lot of those sites were converted very late in 2025. So we opened, I think, 18 sites across December. I might be slightly overstating, but it was a material number. So we wouldn't consider a lot of those sites have reached maturity yet. So the average will be being brought down by the -- as those sites come back. We did notice just in regard to tobacco, it is -- that is one of the most heavily impacted categories when you close a store for conversion. And that's the hardest one to kind of get the growth back as customers create new habits or unfortunately find sources of illicit tobacco as well, we suspect. And one of the things we're looking at to kind of arrest that going forward is ways in which we can trade the stores through conversion. So by putting a drop-down shop on forecourts while we're doing those upgrades. And we think that will also have a material impact and help keep us in touch with our customers during the conversion process and keep their habits at our stores. I think across any network, you're going to get variability of an offer. And one of the things we're very focused on looking at the 2027 program is site selection. So not all stores have responded in the same way, and we're getting better at picking the sites where the OTR offer will hit the ground running and thinking more about how the ready store traded prior to conversion and making sure that our offer is respectful of the customer base we've got and introduces more with OTR as well. So there are a lot of learnings, and we're confident that if we take this period to reflect, get the rest of the offers in place, nail site selection that we will see that average lift across stores.

Okay. And just on -- I guess, we're looking at a 6-week period here as well, which could be prone to weather and other fuel prices and other things that could be driving this. If we had sort of the rest of the fleet on that table, would you see anything unusual there? Like i.e., is there any controls put on this sample that to adjust for what might be impacting sort of broader market conditions around ex tobacco sales or fuel volumes?

No. No, this is straight performance. So we know through the back quarter of last year, we had worse weather. It's a terrible excuse, but weather really does impact beverage sales and ice sales and ice cream sales. So we had significantly poorer weather than year prior. So we do know that convenience was impacted versus year prior across our entire network. So we haven't put any of those controls across it. It's a straight comparison to the year prior for that site. So you will have some variation as we would see across the network as a whole.

Okay. And then just on tobacco, it's encouraging to see that stabilization. I just wonder if that's consistent across states or if you're seeing uplifts in tobacco in states where there's enforcement and still meaningful declines in those that haven't progressed as much around enforcement? Or is it pretty much across the board and it's other factors?

No, it's extraordinarily dependent on enforcement. So Queensland is a great example at the moment. They've run through a period of enforcement just prior to Christmas, and we saw sales bounce back where enforcement has taken place around sites by more than 100%, almost immediately. Typically, what we're seeing is that decline over a 12- to 16-week period unless more enforcement takes place. So where enforcement happens, the result is immediate and it's material. So the variation and approach taken across the states has a meaningful impact on our tobacco sales.

Okay. Great. Final one is just a clarification. Just around the lease asset impairment that you put through that you discussed earlier. Just wondering if there's any impact we should be thinking about on gearing, lease D&A, lease interest, those sorts of measures going forward out of that?

Yes. Not really much of an impact to think about in terms of underlying earnings because predominantly the impairment of the right-of-use lease assets. And in our underlying, we don't include the -- I guess, the depreciation of that right-of-use asset. There's a relatively small impairment of property, plant and equipment, which should give a small benefit for depreciation going forward. But otherwise, no impact.

And our next question today comes from Tom Allen at UBS.

Just slowing the planned rate of OTR conversions for '26, it feels like a necessary step, just to focus on execution. And Scott, you commented that these conversions are back ended to the end of the second quarter. As you lean into the conversion program, how should we think about these conversion targets annually over the next couple of years as your execution know-how matures?

Yes. I think, Tom, we want to come back on that in the second half once we've had a bit more time to just work through the performance of the current set and the program this year and give Teresa a chance to get on board as well. And that's probably in terms of what we look to do for '27, we're just going to come back on that a bit later, just focus on what's ahead. As said before, I mean the pace is actually -- if you look at it over the period that we're going to be converting is still quite high, right, because it's a compressed period this year. But obviously, really keen to see improve our assumptions around the better uplifts that we'll get with some of the basics that are in place. I think, look, I didn't touch on it before, but just the other thing that's very much on our mind is we've got -- it's been a significant period of change for the retail organization. We've got to get the supply chain landed well and a few other things we need to land this year. So we just need to give the team some space to get the priorities right. So conversion program and new store openings, they are quite intensive pieces of work, right, that take a lot of effort to get right. So we're just trying to pace ourselves a little bit more carefully this year and consolidate the learnings and then really regroup. And obviously, if the results continue to be there and continue to lift and translates into some superior earnings outcomes, then obviously, we'll be incentivized to go harder in the years ahead. But something to revisit a bit in the second half.

Just on leverage. So you're targeting to reduce leverage from 3x to 2x by the end of '27, but you've called out that the target assumes improved market conditions and capital management initiatives taking effect. I mean improved market conditions could be a very broad brush. So can you help please clarify the top 3 or 4 items that you're looking for specifically in regard to your reference to improved market conditions really driving that stronger leverage position?

Yes, sure. Thanks, Tom. I mean obviously, it's important for us to lower our debt, but the most important thing is to grow earnings. And so in terms of that, improved market conditions include across the board. So obviously, there's the refinery, which is important, but also not forgetting that the FSSP Phase 1 will underpin our earnings. So we need to land that, obviously, as soon as we can. So that will be really important. The other factor, of course, is everything that Jen and Scott has talked about with retail, making sure that we're growing earnings there as well. So they're really, really critical. We've also called out, which we haven't discussed a whole lot yet is the sale of surplus land. So we have a potential -- we're looking at the surplus land there. It's no regret. You don't sell land earnings like mine if you sell the business. So that's what we're looking at there as well. So we've maintained -- we put this target out of total net debt-to-EBITDA, gearing target of towards 2x by end of FY '27 at the half year. So we're maintaining that.

Okay. Maybe just the last one for me is just noting this noncash impairment of retail sites of $555 million. It's a big step-up from the impairment recognized at the half. Now I understand that, that's only an accounting treatment, reflection of the recoverable amount compared to the carrying value at the point in time, not necessarily reflecting expected lower profitability. But can you just clarify why the impairment grew so much relative to the first half given that Convenience and Mobility earnings has improved and so to the macro outlook unless your view on future earnings has softened?

Yes. No, thanks, Tom. I mean our future view -- our earnings -- our view on future earnings hasn't softened. Really, the difference between H1 and H2 is that when we did the impairment in H1, our outlook for the rest of FY '25 was different to where we landed. And then we've taken essentially FY '25 and then grown it by some -- they're all disclosed in the financial statements of very, very modest growth in rate increases. So no impairment of any of the opportunities that Jen and Scott have spoken to already and then obviously discounting it by a relatively high discount rate. So it is mechanical, but it's essentially starting from that FY '25 base.

And our next question comes from Craig Woolford at MST Marquee.

The first question, just around that supply chain transition. Just -- I've got 2 parts to this question. The first part is on one of your slides, you hint at, I guess, some transitional cost impacts. Is there a figure or a way we can dimension that? And then the second one is more of a medium-term opportunity. In terms of choosing to go with your own supply chain with third-party logistics providers. Is there going to be a step change in the number of SKUs you can hold or the speed of delivery that will give ongoing benefits?

Maybe I'll answer your second question first. Yes, there's an opportunity to hold a different range of SKUs or a larger range of SKUs. We hold quite a large range at the moment. We hold, I think, 3,600 across the OTR offer, which is quite large. Where we really see the opportunity, though, is bringing in new products or more of our exclusive brands. So we've got a number in the stores already. We see that as a material opportunity for us to grow and indeed to replace the loss of the Coles Own Brand, which was quite a successful part of the previously Coles Express offer. The speed to market we can achieve in terms of bringing those brands on is material as well. So I think there's a lot of opportunity in that space. 2026 is a transition year where we will be running as we stand up those distribution centers and the new supply chain across the course of the year, we'll be transitioning off the product supply agreement with Coles. So for a period of time, there will be some duplication of supply costs. That's structured as a combination of a fixed fee and a product-based fee. As we don't lift product, that cost will obviously be removed, but there is a fixed fee component. However, the improvement we will receive from suppliers will help offset that.

Yes. The other bit, Craig, I think to what Jen said is there's just range alignment as well between Express and OTR. The offer will still be somewhat presented differently clearly, but what we can do to get alignment just consolidates our buying our position with suppliers. And obviously, that brings efficiencies and margin improvements as well once it's implemented.

It also -- I think the other thing to remember about is it will reduce the inventory hold at store. Whilst we will have obviously higher inventory at warehouses that will reduce inventory hold at store and should also improve your wastage as you send out just-in-time fulfillment to stores, which will be enabled through Blue Yonder and the order fulfillment. So it brings quite a lot of advantage to us beyond being able to control our range more effectively.

Understood. That's really helpful. Just 2 other quick ones. Firstly, just on that Flybuys, is that just about the systems enablement under the OTR system and [ brand ] banner? Or is it -- is there a cost associated with offering Flybuys OTRs sites?

So the original arrangement with Flybuys didn't extend to OTR. We've negotiated an extension to OTR with Flybuys. So that negotiation was concluded and executed last year. There is an IT enablement piece for the OTR POS to be able to deliver the suite of loyalty offers associated with Flybuys. And there is a cost associated with that. But that's one of the ways we could show loyalty and we'll give the customer choice on how they choose to receive loyalty through OTR. So it's not necessarily an incremental cost.

Right. So you might be swapping it out because you would have had a cost incurred under the Reddy banner anyway.

Yes, or within the OTR offer, there are ways that customers choose to receive their loyalty at the moment, they may choose to swap or change them and receive Flybuys points instead.

Yes. What happens to the petrol discounts that are available under the Reddy Express? Who funds that...

Petrol discounts on shopper dockets? Yes, they're only available at Reddy Express. We haven't sought to extend that into the OTR network.

It's a much smaller -- it's a much less smaller part of the loyalty program now than it used to be. [indiscernible] is the key one for us.

And with the introduction of Scan Pump $ave, we have customers -- we have our own digital assets that allow customers to receive under canopy discounts as well across both brands.

My last one, just an accounting one. Sorry again to go on this asset. Is it ultimately a higher discount rate on the lease book that you have? Because essentially, the right-of-use asset should be the net present value of those leases. Just trying to understand why change by that amount.

Yes. So I mean the discount rate is higher. And you're right, we put the leases onto our balance sheet at our incremental borrowing rate. So that is different. That's just a requirement in any case. But really, the key driver is, as I said before, the FY '25 earnings are definitely at a low point in our earnings cycle and that's the basis of which we have, as I said, with pretty modest growth rates, growing the earnings and discounted them with a relatively high discount rate. And obviously, I mentioned it before, but none of the exciting initiatives that are looking forward to in 2027, of course, are baked into that baseline because they're just not delivered yet.

And our next question today comes from Henry Meyer with Goldman Sachs.

In Convenience, there's been a lot of moving parts over the year. So hoping you could just like simply step through what savings have been delivered in 2025. And ideally, if you could quantify the moving pieces in '26 that are within your control, like the supply chain duplication costs, please?

Yes. So in '25, I think that another reason for use in the second half, and we've called it out in the bridge in the section on acquisition synergies to try and identify the synergies and cost downs that have come from bringing the businesses together. So we sort of said at the first half that we expected to deliver $50 million worth of synergies in the second half. And you can see on the bridge on the -- there's about $30 million of cost downs in the second half. There's $34 million of fuel synergies, but that incorporates obviously, some of the benefit of the full half benefit of the full acquisition of Liberty as well. But the $50 million is made up of the $30 million of cost downs and the rest of the fuel synergies essentially. Now there's work we've done in all the other sort of trading areas around supplier benefits and so on, and that's that gets a bit lost in the general wash of trading ups and downs generally. But certainly, just having a lower above store cost base and improved fuel margin by taking control of the fuel supply chain in to the OTR business in South Australia is a material uplift and sustainable going forward as well. This we -- at the half, we also talked about benefits into '26 related to supply chain benefits. Obviously, we're pushing back the supply chain, the standing up the independent supply chain by 6 months, that's going to be more back end of this year into 2027 now. But that's still a real upside that we see coming in the year ahead.

And just a quick follow-up on the commentary on the sale of surplus land, Carolyn, just any extra detail you could share there? Is that retail or distribution sites and any ballpark value that you could be looking at?

Maybe I can talk to that. I mean I think we've obviously got a significant infrastructure position around the country, quite big land holdings that are associated with those positions that I think now that we're confident around what footprint we need from an infrastructure perspective, the land around those facilities can be safely divested of without impacting our operations in any way. And the reality is there's some positions in some markets that are highly valuable. So we have done -- it's not like we just thought of this. We've been working on this for a little while to assess the value of those lands. In fact Jen did a lot of that work as she supply chain before she stepped into the retail role. So we're quite advanced on it. The reality is it will take some time to progress the subdivisions that are necessary to separate the land from the operating facilities and then divest. But that will -- we'll progress that in earnest over the next -- certainly over the rest of the next couple of years to try and move that forward. Because it's obviously -- it's liberation of value that we can attain without impacting our operations or our forward strategies in any way whatsoever. So definitely a really significant opportunity to bring down debt.

And our next question comes from Rob Koh at MS.

Sorry, but I would like to just ask one more question about the impairments. I do take on board all the comments you've made about the cash flow analysis. Is that impairment that you've now taken also including site decommissioning and restoration costs? I know your provisions haven't really moved. So I'm assuming yes.

Yes. Look, the impairment really, it encapsulates all costs associated with any particular site and anything forward-looking that we know about at this point in time. So yes, site decommissioning is part of the cost of the site.

Great. Okay. Now just in the CapEx guidance, if I go back to last year's presentation, the kind of CapEx outlook for this year included, say, like $250 million to $300 million of sustaining and the rest for growth and then a lot of the On the Run rollout to be landlord funded. Is that funding mix still broadly consistent? Or are there any changes you'd like to highlight?

Yes. Look, I guess, split between sustaining and growth is still relevant. So that guidance is relevant. And obviously, where we talked about between $350 million and $450 million. So we're looking at the bottom to the midpoint of the range, perhaps [indiscernible].

Yes. Maybe I can start and can add in. So we do have some landlord funded sites. We've found that, that's been a useful model for us where we're doing quite material redevelopment of sites. It's probably not as well suited to conversion -- small conversion works, but it's absolutely something we are exploring with landlords as we do those large-scale redevelopments. Our Glass House Mountains sites would be an example of one that's underway at the moment.

Okay. Great. While we have you, can I maybe ask for your views, if any, on the daily price cap coming in, in Victoria? Is that something that you're ready for? Or do you anticipate any impact from that this year?

We are ready for it. All of our systems are up and working already. Do we expect an impact from it? I think it's going to be very interesting. The main thing that will be interesting is how the market cycles because you can only post -- you can post a maximum price for the day and you then cycle down from that price. That will be a function of the market. But I guess we'll need to wait and see how that plays out, but it will certainly bring a period of change to the market as we get used to that new dynamic. We're ready to go.

All right. Sounds good. Final question for me. You have your new Head of Retail joining you, I guess, in July after probably some -- hopefully, some high-quality holidays. Can you give us a sense of how much into the detail she is and if there's -- just how you're thinking about the -- her introduction.

Yes. I mean she's -- we're obviously really looking forward to her joining, and she's also excited about joining as well. I would say that it's in good hands with Jen. Things are progressing regardless of when Teresa joins. So it will be a pretty seamless transition. And Jen will stay connected with the business as well through the rest of the year and continue to work with Teresa and help drive forward the agenda with as much focus as we can. So I think it will seamless and it's running well. Teresa is already certainly spending some time with Jen when she can, recognizing she's closing job. So she's still got responsibilities for the company she's working for. So more around just getting to understand the business a bit better and some of the people and just helping to think about the priorities and when she does finally join. But I think we have to respect the fact she's still in the employment at the current time. So I can't expect too much from her just yet.

And I think we're very focused on ensuring it's a seamless transition and that we've got as much alignment ahead of her start as possible. So as not to disrupt the business as she comes in.

And our next question comes from Adam Martin at E&P.

I suppose just back on Slide 18, obviously, good metrics there in terms of revenue uplift, but we haven't got any sort of cost data. Just any sort of thoughts on return metrics yet. I'm thinking sort of EBITDA uplift versus CapEx. Any metrics you've got around any of that, please?

Yes. Adam, I'll say a few words. I think there's a few things to touch on. I think the conversion CapEx is obviously higher than we had anticipated right at the very beginning. I think we'd always sort of figured it would be about $1 million, and it's turning out to be actually somewhere -- I think we said [ $1.5 million ], but some of the -- certainly the average I think is a little bit lower than that. But as we sort of touched on in the pack here, there's a lot of catch-up capital that we -- even if we were continuing to run the Express offer that we would have to be spending. There's been a period of obviously underinvestment for a long period of time that we don't have to catch up on. So the way I sort of get comfortable a bit with the conversion CapEx is that we are also upgrading facilities that needed to be upgraded, particularly on forecourts where we just have not invested to reflect the current market and the current grade requirements that customers have and pump sets, et cetera. So there's a bit that goes into that and a bit in store to just do basic things like opening -- reopening the toilet facilities, which is a key part of the value proposition in the fuel and convenience outlets. So that's the program. That's not to say we can't do things better and we can't get the cost down, and that's certainly a key -- a bit of the key focus as well with the learnings we've had from the stores that we've done is do we need to do as extensively as we're currently doing and can we achieve the same outcome in a slightly more cost-effective way that obviously allows us to do more sites with the same money. I think that's a sensible thing for us to be going after, and that will all help to improve returns. The second part I would touch on is that I mean we've got some really impressive sales uplifts coming through. That earnings are lagging those sales uplift. So we're not seeing the same uplift in earnings. And that's a bit reflective of a higher cost that you install when you open a new site, particularly around labor and investments in product range and accepting of higher wastage and shrinkage as you allow -- get customers familiar with the offer. So there's a bit around that, that we have to -- that's just part of the maturity of stores, but I think there's also areas and perhaps I hand over to you, Jen, where we think we can do that better as well or in the returns.

Yes. I think we've spoken about supply chain at length. That will be a huge enabler to growing our earnings. A number of these stores we've also transitioned from non-24-hour operation to the OTR, we never close model. So additional labor costs associated with that. As we get the customers and the penetration of sites in the market actually being able to do above-the-line marketing of that offer and telling people what OTR is and what it stands for, we see is incredibly important as well. So I think the -- there is no one thing that will help us see the returns we want out of these stores. It's an array of things. It's wastage, it's labor, it's energy costs, it's more cost-effective conversion and it's an education piece with customers about what that offer is. And I think as we get all of those things working together in kind of in sync, that's where we'll see the real earnings uplift. So that's what we're focused on.

Okay. And just a follow-up, are you seeing sort of better returns for the new stores that have been opened or the already expressed conversions thus far, I know it's early, but just any initial signs there, please?

They're very different beasts. Reopening a store which has a customer base and an established traffic flow and catchment is very different to opening an NTI. Typically, we're seeing a -- I mean, it depends store by store, of course. But typically, you would see a conversion reach maturity ahead of an NTI -- sorry, a new industry, a new store can be 6 to 18 months to reach maturity. We would hope that with these stores, we would be seeing it within 3 months, maybe a little longer depending on the store. And as we get better at doing conversions without closing stores, we should see that improve as well. So they're quite different.

And our next question comes from Gordon Ramsay at RBC Capital Markets.

Just on your store -- new stores and conversions, are we looking at similar numbers in FY '26 to what you delivered in FY '25? In other words, 3/4 of the new OTR stores will be conversions. Is that a good kind of basis to look at what you're doing going forward?

I would say you'll probably have a different mix. We have an active pipeline of new stores, but new stores don't always arrive on schedule, and they're a lot less predictable than a conversion. So you're waiting for development applications or doing major earthworks, you can get quite a lot of movement in new stores. I think you'll see a mix of new and conversions this year.

And just a question on -- I think, Scott, you were talking about aligning the digital loyalty and digital offers across both Reddy Express and OTR platforms. Have we still got 2 platforms running? I think you said that earlier. And isn't there an urgency to go to 1 platform? And is that required to, for instance, move to Flybuys at OTR in the second quarter of FY '26?

Yes, we can -- not necessarily. I think we can -- we know we can align the customer-facing offer without having to align the back office -- the back-end systems at the same time. So the priority is to get the customer-facing offers aligned because it's quite -- as you -- I mean it's quite confusing for customers, right, particularly come to a market like New South Wales, we start rolling out OTRs and replacing Express and it's very confusing if customers come in and their whole loyalty experience with us is completely different. And they -- whilst the stores are different, they understand that, the brand -- the fuel brand is the same and they associate a lot of with the Shell brand as well. So removing all that clutter and confusion is the priority at the moment, Gordon. And I think as we -- as I sort of touched on earlier, we're now -- the work we do at the back end doesn't have to be so driven. We can just do that at our own pace and without disrupting the organization. So I think you can think about them as 2 different things.

I understand what you're saying, but I think from a cost viewpoint, aren't you duplicating costs?

Yes. Look, I mean absolutely. I mean it's certainly going to be very beneficial when we get to one system, no doubt. So that's actually something we want to get to as soon as we can, but at the right pace.

I think the last discussion -- last question from me with the previous CEO of Consumer Mobility was that there was no change to the EBITDA target, I think, by around 2028 to $500 million. Have you updated that guidance or made any comments on it?

No, we haven't updated that yet, Gordon. We'll certainly come back to that. I think what I have said previously, which is probably still true is that -- which I think is still true is that the opportunity is still there. We don't -- still -- I still feel very confident about the opportunity, albeit you have to adjust that for the impact of tobacco because it's obviously been a known material impact that is with us for now, whether we can -- whether that is recoverable in time with more enforcement remains to be seen. So that's certainly one thing that has changed. The other thing that's changed is just probably the time line. I think obviously 2028 is not that far away. It's taken us a bit longer to get to the point where we're at today than we had imagined when we started. So maybe -- certainly, the time line is different than what we set out a couple of years ago when we started this journey. But I still believe in the potential for this business, and we're starting to see some really good green shoots coming through in terms of the early conversion activity, which demonstrates the opportunity. Yes, we've got some headwinds that we didn't anticipate when we started, which we've got to address and overcome. But this is still fundamentally a huge opportunity for our business. The convenience market is enormous. The offer that we have at the moment is outside OTR is pretty unsophisticated and our customers are responding well to an upgrade of the offer and that -- and I would say, too, that the OTR offer now is 3 or 4 years old from when we started. So there's still room for that even with that offer to extend it and expand it further into new categories. So it's really -- it remains a really exciting opportunity for the company. That target still sits there. It might be a bit further out than what we anticipated.

And our next question comes from Scott Ryall with Rimor Equity Research.

Scott, I was hoping to turn your mind to your energy portfolio and give some of the other guys a rest. You made 2 comments on that in the outlook, one related to the FSSP on the refining business and also the resilient earnings for the C&I business. So I was hoping to just ask on those. In terms of the Phase 1 of the FSSP review, I wonder, could you just talk to what are the discussions focused on? Is it looking back and whether your returns have been adequate or whether it's the change in your cost base going forward and therefore, the ability to earn an adequate return on capital for investments? And does it impact on your view on what you're doing on renewable fuels, which you've mentioned a couple of times? And then on the C&I business, I'm just wondering what resilience obviously doesn't give any direction and it's the first year that it's gone backwards for a while. You mentioned in your press release a few of the investments that you've made in the last little while around new extensions of your network. So I wonder if you could just comment on the outlook for those with those extensions in your network in mind, please?

Yes. Okay, cool. Yes, I mean on the FSSP, which was negotiated with federal government back in 2021 was -- principles of that was always to ensure there was a safety net that meant that protected ensured that we earned the margin that offset the operating cost of running the business and the ongoing sustained capital to run general maintenance capital required to run the business as well. So from a cash perspective, we would be always have a safe has protected us to be breakeven essentially on a cash basis moving forward. Now of course, the workings of that would be from quarter-to-quarter might be different, but on average, that was the outcome. Since that point in time, obviously, costs have moved up more quickly and higher than we had anticipated just driven by inflation. We have had additional costs imposed on us that weren't there at the time, particularly around safeguard mechanism, for example, and cost of construction, partly inflation, partly doing business in Australia has been heavily elevated as well, and that's obviously been reflected in the Low Sulphur Gasoline project. So all those things have meant that the safety doesn't provide the protection that was anticipated back in '21. And that's the basis of the review that's currently underway under Phase 1 of the FSSP with the federal government and the one that we expect an answer on in the very near future. Phase 2 is really looking at what is necessary to sustain refining beyond the current FSSP, which ends in 2030. So what would it take for refining to run into the next decade essentially. And that will assess the whole of elements that are implicit in Phase 1 as well, but also, I guess, what's beyond that, what's necessary to sustain not just running the plant as it sits today, but sustain growth capital as well going forward and invest in these facilities for the longer-term future. And clearly, that takes you into the renewable space and what investment would make sense in refining to support lower carbon fuel production. And when you're into growth capital, then what the FSSP Phase 2 review needs to assess what's the logical return on capital to actually encourage our company to invest in those sorts of projects. So that's a more comprehensive overview. That has started, but it's probably going to move forward in earnest once Phase 1 has been completed. So it's a bit more for the future. But certainly something we anticipate to complete government before the end of this year and obviously important for the long-term outlook for our refinery Geelong. Lots of reasons why that should be a win-win outcome for both the company and government. So we're going into that with a lot of confidence. But obviously, that's all ahead of us. Commercial obviously, continues to have a very stable and reliable return now for a number of years, doing extremely well as we sort of talk in the pack, really built on our infrastructure position and our relationships with customers. The sorts of investments we've made in the last year, moving into marine market in Brisbane, extending our aviation network is really trying to build on our strengths and our capability, where we're doing -- where we -- markets where we have a competitive advantage and have opportunities to take that capability into new parts of the country where we're not currently present. That's been the basis of our growth over the course of the last 12 months. There's always a bit of -- you have to invest before you see the returns. And so that's a bit the case last year. Those investments were made predominantly in the second half of last year and the returns are more for the year ahead. So that's a bit of a feature in the result that we've printed for 2025. So I think we expecting Commercial to still be a reliable, consistent performer and contribute significantly to the earnings of the group. It's a great business that's underpinned by privileged infrastructure around the country, which we want to continue to build and protect. So given where we are and given what's in front of us at retail, it will be mostly focused on organic, sensible organic type investments as we've made in the last 12 months.

Thank you. There are no further questions at this time. I'd like to -- I'll now hand back to Mr. Wyatt for closing remarks.

Look, I'm conscious of time of 5 minutes over, so I'll keep it really brief. But obviously, it's been great to finish the year with a really strong half behind us. As I touched on earlier, it's half that is reflective of what is the underlying performance of the retail business, particularly moving forward. And we're pleased with how that's -- how we have finished the year. We're looking forward confidently to the year ahead to build on that, finish off the last remaining piece of major transition work ahead of us and obviously move forward with the conversion program and enter into '27 with some really continued runs on the board and confidence about where we're heading within Convenience. Commercial, as I just touched on, another reliable, consistent year ahead. And refining, a bit of a critical year for refining sector generally, both refineries really dependent on a review of the FSSP. And -- but I think beyond that, I think we still look forward to quite a constructive refining margin environment through the end of the decade, and we're in a position now with our 5-year major maintenance cycle behind us to really take good advantage of that with a clean run over the next 4 years to produce well, minimize capital spend in that part of our business and more broadly across the group, stay focused on capital discipline and strengthen the balance sheet. So a lot to do, but we know what we need to do, and we're looking forward to getting on with it in '26. Thanks for joining us, and thanks for your support.

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