Viva Energy Group Limited

Thank you for standing by and welcome to the Viva Energy Australia 1821 results conference call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Scott Wyatt, Chief Executive Officer. Please go ahead.

Good morning and thank you all for joining us today to discuss Beaver Energy's results for the first half of 2021. My name is Scott Wyatt, Chief Executive Officer of Beaver Energy and on the call with me today is Siobhan Brizzo, our Chief Operating and Financial Officer. I'd like to begin this morning by acknowledging the traditional owners of the lands on which we are collectively gathered for this call and pay my respects to their Elders past, present and emerging. We'll begin the presentation this morning on page 5 of the pack that was uploaded to the ASX this morning, and as always, we'll be happy to take questions at the end of the call. After a very challenging 2020, I'm delighted with the way the business has performed during the first half of this financial year. Although the country continues to grapple with the pandemic, there were fewer lockdowns compared to the first half last year, and we've seen good recovery in our retail and non-aviation The steps taken to reduce servicing costs in response to a lower sales environment have contributed to an improvement in commercial earnings and higher sales in our retail channel have helped offset the impacts of margin compression from rapidly rising oil prices during the period. Strong production, low accrued costs and retreat of the Federal Government Temporary Production Grant has seen the refining business return to profitability. A long-term support in the form of the fuel security services payment and expected benefits from the mandatory stock holding obligations and capital contributions towards storage and upgrades to low sulfur petrol substantially improves the outlook for our refining business by reducing downside margin risk and ongoing capital requirements. Beyond refining, we also continue to make good progress on our LNG import facility. and other projects aimed at transforming the site of Geelong into a modern energy hub. At the group level we have delivered a $125 million improvement in EBITDA compared to the first half of 2020 and $144 million of free cash flow which has led to a $44.7 million net cash position at the end of June. I'm very pleased that we're able to declare a fully frank dividend of 4.1 cents per share and are now in a position to return the remaining proceeds from the divestments of our strike and waypoint rate through a mix of capital return and a non-market buyback. Before we move into a more detailed explanation of our results, I want to touch on a few major changes to our business since we last reported. These are set out on slide 6. I've already mentioned the introduction of the SWEDA measures by the Federal Government under the Small Security Package. With these measures in place, we expect the refining business to more consistently achieve cash returns above break-even levels, with periods of outperformance when production and regional refining margins are strong. Given these changes to the refining earnings profile, we have taken a decision to determine dividends on the performance of our retail, fuels and marketing businesses separately from our refining business in future. We expect to deliver more consistent dividends from our retail and commercial businesses, with dividends from our refining business depending on the operating environment across the course of the year. In order to provide more transparency on the underlying cash performance of each business, we've also updated our segment reporting so that supply, corporate and overhead costs are now allocated to the relevant businesses that they support. Costs which cannot be directly allocated are retained in a smaller corporate segment. and the rest of the presentation reflects this new reporting. Now turning to slide seven, getting back a few comments on our safety performance for the year. I'm continually pleased with the way that we're managing the impacts of the pandemic. We have not had any incursions of COVID within our operations and have people working friendlessly between home and office as restrictions allow. We expect there will be some parts of our operations where mandatory vaccination may be required in future. but for the majority of our operations we are aiming for voluntary vaccination rates to reach above 90% by the end of the year. Unfortunately we have seen an increased number of personal injuries this year driven in part by an increase in operational and maintenance activity which was deferred from last year. Many of these injuries are a result of manual handling or line of fire events and as such we have launched additional programs to improve manual handling techniques and risk management in many parts of our business. The Geelong refinery incurred two lots of containment events which have been recorded as API Care 2 incidents, but otherwise Geelong has performed well with high levels of plant availability following unit maintenance and continued progress on our reliability programs. As you can see on slide 8, Geelong achieved 98% availability which has led to strong production on crude intake of 1.4 million barrels for the half. Production has shifted to diesel and gasoline on the back of market demand recovery. and we continue to minimise jet production given the ongoing impacts to aviation from border closures. Regional refining margins remain significantly lower than historical levels, but we have seen some encouraging improvements in gasoline margins, and crude premiums remain well down on last year, which is helping to reduce the refinery's cost of crude. Geelong's refinery margin for the half was US$6.10 per barrel. On slide 9, we set out our retail and commercial sales performance in line with the new segmentation basis. Retail reflects all sales through our Shell and Liberty branded channels, whereas commercial includes sales to competitor retailers through our wholesale channels as well as the traditional commercial segments. Retail sales volumes have increased over the first half of 2020, reflecting fewer days in lockdown and strong performance across our Alliance, Liberty and owner-dealer channels. Premium petrol represents around 32% of our total retail petrol sales and we expect this to grow as we expand our BPAL offering to owner-dealer networks and new markets such as Tasmania. Commercial sales remained in line with first half 2020 with a decline in aviation sales offset by improved diesel sales through our wholesale, resources and transport segments. The diversity of our commercial business has been a key driver of this resilient performance. Before I hand over to Jovan to explain our financial performance in more detail, let me touch on some of our key achievements in the first half on slide 10. Our retail business performed extremely well during the worst of the pandemic in 2020 and has maintained this momentum in 2021. Sales have quickly recovered as stay-at-home restrictions were relaxed and we have made good progress on the development of our convenience offer with our alliance partner and delivered network growth through the Liberty Convenience Channel, which now stands at more than 90 stores. Despite the impact of aviation and marine sales from border closures, the commercial business has performed extremely well. The diversity of segments represented in our commercial businesses provides a great deal of resilience to different conditions in each sector and we have done well to reset the business to reflect a lower demand environment. Our refining business has returned profitability and we have clear plans in place to invest and develop our site into a broader energy hub. In addition to the contribution towards low sulfur fuels production, we were pleased to receive up to $33.3 million in funding to develop 19 million metres of storage at the site. This is expected to improve production and import economics and increase our participation in the mandatory stockholding obligation program when it is introduced. Since lifting, we have continued to demonstrate a strong cost and capital discipline, maintaining maintaining a strong balance sheet and returning the proceeds from the divestment of our stake in Waypoint REIT as promised. We are well advanced on our development of the energy hub and look forward to taking the gas terminal project to FIB in 2020. Reports continue to support the need for additional gas in Victoria and we look forward to meeting this with first gas expected from 2020. Overall, I feel very good about what we've achieved and I'm really excited about our plans for the future. Now I'd like to hand over to Jevon, our Chief Operating and Financial Officer, to discuss our key financials in more detail.

Thanks Scott. I'll kick off on slide 12. As part of today's announcement, we've reorganised our reporting segments and separated the Retail Fuels and Marketing, or RFN, part of our business from refining. On this slide, I'll take a little more time to talk through the financial highlights in the new format, and then I'll talk to the changes on the next slide. The first half of this year has been really positive after a challenging 2020. Group EBITDA has increased by $124.6 million, or 95% to $256.3 million. The retail, fuels and marketing business recorded EBITDA of $217.6 million, for the half, up 7% from the prior comparative period and underlying end path of $108.6 million. CapEx for the period was relatively low at $21.8 million for the RFM business as we continued to manage costs carefully given the uncertain environment. This meant we delivered free cash flow of $131.3 million for the RFM business. It was pleasing to see the refinery return to profitability. recording EBITDA of $43.8 million, compared with negative 66.8 in the prior period, and NPAT of $3.3 million. Overall, Group NPAT has recovered to $111.9 million for the half, up from $24.4 million this time last year. Free cash flow was $144 million, and we've declared a first half dividend of $65.9 million. The strong performance in the first half this year demonstrates the speed at which the business can recover as lockdowns ease and activity only partially resumes. On slide 13, we've set out a summary of the changes to our reporting segments. Going forward, we'll report underlying EBITDA RC, including actual lease expenses, to better align this measure with cash generation of the business. We've allocated supply, corporate and overhead costs to better provide transparency of retail, fuels and marketing profitability, with refinery-related costs allocated directly to the refining segment. Thirdly, we've moved the wholesale volume to independently branded operators, from retail to commercial, within the RFM segment, and aligned the underlying NPAT Part C with the previous definition of distributable NPAT. This has the effect of removing the need for a separate, distributable NPAT calculation. Dividends can be determined with respect to underlying NPAT RC going forward, and as you can see from the previous slide, our underlying NPAT relates more directly to free cash flow. A detailed summary of the reporting changes, including to the prior comparative period, is set out in the appendix to the presentation. Turning to slide 14, We've set out the segment results in a similar format as past presentations to highlight the year-on-year changes. We've included the reporting changes for the prior comparative periods in the waterfall. However, I'll focus on the first half of 2021 as I walk through the slides. Our first half retail EBITDA for 2021 was $116.7 million, broadly in line with the first half in 2020. We saw strong sales volume growth in regional Australia through our dealer-owned and Liberty Convenience Outlets, while alliance volumes averaged 58.4 million litres per week, up from 54.1 for the same period last year. The strong sales growth, coupled with non-fuel income growth from convenience store sales royalties, almost completely offset the impact of lower retail fuel margins due to the impact of sharp increases in oil price. This compares to the sharp decreases experienced in the first half of 2020 and all prices collapsed and overall is an excellent period-on-period result. Operationally, we completed a site and store refresh of more than 80 Colt Express stores and saw convenience sales growth through the Alliance network of 11% relative to two years ago. We continued to extend V-Power premium fuel to our dealer network and saw premium petrol penetration at 32% Turning to slide 15, commercially the staff for the first half was $105.9 million, up $15.2 million over the prior period, reflecting solid sales growth in sectors other than aviation and marine, as we cycle only three months of lockdown impact in the first half 2020. During the first half 2021, aviation and marine continued to be impacted by border closures. A reduction in servicing costs helped to make a meaningful earnings contribution, while the appreciating Australian dollar reduced the overall cost of goods sold in specialty segments. It was great to see the company launch our first carbon neutral jet products with the inaugural flight occurring in July this year. On flight 16, the refinery returned to profitability in the first half, following the impact of a difficult and COVID-affected 2020. Refining EBITDA for the first half was $43.8 million, up $110.6 million from the $66.8 million loss in the first six months of 2020. Operationally, the refinery reported strong production performance with plant availability above 98%, higher than it's been for a number of years. Lower crude provisions helped drive the Geelong refining margin to $6.10 per barrel, up from US$2.90 per barrel in the first half of 2020. This was partially offset by the appreciating Australian dollar, and increased production naturally led to increased variable operating costs. The overall result is supported by the federal government's temporary refining production payments, which totaled $40.6 million for the period. And going forward, this has been replaced by the ongoing fuel security services payment, which commenced 1 July 2021. Turning to slide 17. first half saw strong underlying free cash flow supporting the resumption of dividends. Working capital was up $110.4 million, due largely to the impact of increases in the average crude and product prices. However, this was mostly offset by the inventory gain experienced during the period. When adjusting for these impacts, underlying free cash flow was a healthy $144 million, supported by strong cash flow in the retail, fuels and marketing business. Lower capital expenditure during the half, as we continued to manage costs carefully in an uncertain environment, drove cash conversion above 100% of unemployment. A good segue into slide 18 on capital expenditure. CapEx for the half was $48.3 million relative to our guidance of $185 million to $210 million for the year, including the refining major maintenance. We deferred a significant amount of expenditure to the second half of 2021, particularly in refining as we work through the refining fuel security package. And major maintenance on the hydrochloric acid alkylation plant that was deferred from 2020 is proceeding now and is expected to reduce refining intake for Q3 by 0.9 million barrels. At this stage, we're working towards our original capital expenditure plans for 2021. and as such, have held guidance for the year. However, we'll continue to monitor this as the year unfolds. Turning to slide 19, we've set out the revised dividend policy. Under the new policy, the board will continue to target the dividend payout ratio of between 50% and 70% of retail skills and marketing impact. We'll also target a payout ratio of between 50% and 70% of refining impact. Declaration of refining dividends will be assessed on an annual basis rather than half yearly and it's declared paid together with any final retail fuels and marketing dividend. The change to the policy follows our review of reporting segments and means that we expect to pay a more consistent stream of dividends from our retail fuels and marketing business irrespective of refining performance over time which has the potential for significant upside on an annual basis. As a result of the strong retail skills and marketing impact of $108.6 million, the board has determined a fully franked dividend of $65.9 million or 4.1 cents per share for the six months ending 30 June 2021. On slide 20, we've set out the improvement in our balance sheet from $104.2 million of net debt at 31 December 2020 for $44.7 million of net cash at 30 June 2021, driven by the strong free cash flow generation during the period. Given the balance sheet strength and our previous commitment to return the remaining Waypoint REIT divestment proceeds, today we announced capital management initiatives of $140 million, comprising a capital return of $100 million and associated share consolidation subject to shareholder approval, and an on-market buyback of up to $40 million. A shareholder meeting to approve the capital return is planned for the 11th of October, with a view to having the capital return and share consolidation completed by the end of October. After completion of the capital return, we expect to commence the on-market buyback, which is accreted at the current low share price. When accounting for the capital management of $140 million, the company's pro forma net debt would be $95.3 million, at 30 June 2021, which still provides substantial headroom for future growth. Together with the dividends declared today, the capital management initiatives total $205.9 million that we intend to return to shareholders. With that, I'll hand back to Scott to cover the recovery plan progress and the outlook.

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

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you don't speak our phone, please pick up the handset and ask your question. Your first question is from Michael Simicast with Jeffrey.

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

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

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

Tom, maybe if you don't answer the first part of our question.

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

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

That's really good, Tyler. Thanks, Scott and Jovan.

Your next question comes from Mark Santer with MSP.

Yeah, morning. I'm sure someone's going to ask if you are going to buy a gal who won't be able to answer that question. I'm just keen to Our question on the energy hub, and obviously the LNG in Port Town are a bit more visible and kind of easy to digest, but I guess when you look at the broader opportunity in that hub, and it feels like everyone in the country who's got an ageing coal plant that should shut 15 years, 3 live minutes later, who is desperate to build a national energy hub just so they can push remediation costs back, but you've got a site that's going to continue operating for a long time in industrial heartland, etc., etc., Can you talk through the opportunities more about the broader energy hub and I guess maybe the level of interest you're seeing from some of those players in the broader energy sector around it?

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

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

I think with the closure of two of the four refineries, I think we're seeing some changes in the traditional supply patterns of fuel to markets in Australia and it naturally changes our traditional supply patterns as well. I think that certainly we are continuing to look at what's the right way to supply our various markets around the country going forward and to do that in the most competitive and economic way. I'm sure others are as well and I think we'll continue to see the traditional supply patterns evolve over the next 12 months or so. What comes out of that market, I'm not sure, but it's certainly a period of transition I think for the sector. you know, total food refineries that's not in the material are changed to the sector.

Okay, thanks.

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

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

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

The bus just came right around and threw him right under it Scott. Thanks both of you. I mean it's interesting David.

I feel like I'll quote you one day on saying that being in a position to continue returning money to shareholders might be a bad position to be in.

It's not. It's not. It's not. I'm not saying it that way.

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

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

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

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

Yeah, I mean it's a design that's still engaged with government on that and The intention there to implement it is just to design how it gets implemented. Thanks.

Thanks, Scott. Thanks, Jovan.

So our next question comes from Mark Wiseman with Macquarie.

G'day, Scott. G'day, Jovan. Thanks for the update today and congrats on the result. I just wanted to ask a couple of questions on the Liberty convenience JV. It sounds from your comments like that we're the significant contributor to the retail fuel volumes and I suspect it's probably an area of the business that we're all or I suspect a lot of us are probably undervaluing that business. Could you just remind us what your opportunities to consolidate that business down the track And is there any comments you can give just around how much further you expect to grow that network and any sort of profitability metrics just to get a sense of how profitable those sites are compared to your base business?

No, sure. I might give you an opportunity to talk to that.

Sure. Yeah, no, I think that's right, Mark. It's really been our primary channel for retail network growth. And over time, we've talked to the fact that Certainly our Coles Express Shell branded alliance network is more of a metro focused network and as you know has been built up over many decades in more metro locations. The Liberty business has been an opportunity for us to get a little bit more active in regional markets that Shell had exited in the past 10 to 20 years. And it's really been where we've focused our retail network growth in terms of new sites on the ground. There's obviously a few that will come in metro or suburban locations where opportunities drive that. But generally, that network has been focused on filling out our shell card network acceptance and looking at larger and more major sites in regional locations. And while at the moment you see the wholesale bills that we make on supplying that JV. It's a 50-50 share with the other two shareholders, and that means we pick up a share of impact at the bottom line, but we don't see the full economics of that retail business. It's around 80 sites at the moment and continuing to grow. and over time, over the next few years, we do have the opportunity to buy the other shareholders and take full ownership of that business once we feel it's reached maturity. So it is a retail network that we expect to own on a fully integrated basis in time. And for now, we'll continue to work with the other shareholders to grow and something that I think we'll start to talk more and more about over time as it starts to reach maturity. But certainly an opportunity that we're quite focused on as well, as you point out.

Great. Thanks very much.

Once again, if you wish to ask a question, please press the one on your telephone and wait for your name to be announced. Your next question comes from Joseph Long with UBS.

Hi, guys. Just had a question, I guess, listening of the energy hub and in particular the LNG import terminal. I guess the decision to change your dividend policy to have a more stable dividend, how should we look at the business model that you're looking at for the LNG import? Should we expect, I guess, a more stable earning from that business or would you be I guess, inquiring to take some commodity exposure on LNGs.

Yeah, I've got a question. And look, we're still considering the commercial model, the life commercial model for us to take forward, and that will be driven a little bit by... arrangements we put in place with partners and other users of the facility. I think first and foremost it's the facility there to facilitate bringing gas into Victoria and we expect to have existing participants in the gas market being involved in the terminal and that would provide probably the sort of foundation business for the facility. I think there is an option for us as Viva to also participate more directly in the gas markets but that's an option that we haven't landed on yet and obviously I guess we'll be factor in determining the model that we take to FID and ultimately commit to the project on what could be an extra those for the two models I think but fundamentally the majority of the I think earnings for the facility will come from other uses of the facility and therefore should be a relatively stable and predictable earnings stream for that facility, but maybe with a little bit of sort of merchant participation from us on the edge. But yeah, yet to be decided at this point in time.

Yeah. I guess on the LNG import terminal, how do you see the economics stand up given where spot LNG prices are?

So the fundamental purpose of the facility is to facilitate bringing gas into the market and filling our gas shorts. So the project itself should be relatively independent of what's happening with gas prices internationally because ultimately the domestic market will show some reflection of what's happening with international gas prices as well. an import facility to facilitate an infrastructure project to bring gas to the market, if that makes sense. Now, obviously, if we participate in gas markets, it's a different story, but that's not the primary purpose of our involvement.

Yep. Thanks a lot.

So our next question is from Scott Lyle with Graymoor Equity Research.

Hi there. Thank you. Scott, I was wondering if you can... Maybe building on that question just then, you've talked about potential for FIB at Geelong for the GATS import terminal from 2022 with First GATS 2024. What are the key milestones you have to hit in order to get to FIB?

We're also doing the front-end engineering design work at the moment. That's a big part of what's underway. We've also got the regulatory approval processes in place including environmental approvals. So a key milestone will be obviously gaining those approvals and firming up our cost estimates as part of the front-end engineering design work and obviously determining the commercial model that we want to take forward and securing foundation customers. Those are the milestones we're wanting to hit, and it's all progressing well and on plan, and we've said from the beginning that we would like to be able to go to the FID during 2020, and we're still on track to be able to deliver that.

Okay. And in terms of the foundation customers, I mean, what sort of volume throughput will you expect to, I guess, be able to bank before you go to FIDs?

Look, it's a 120 petajoule project. We expect to be able to commit the majority of that. How much we need to be able to go to FIB is sort of something we obviously find reconsideration and something we haven't made public at this point in time.

Okay, that's fine. Thank you. And then the only other question I had was, and again it comes up with 30 other questions online, you've mentioned in your presentation that with the changes that you've talked about in refining, you need to make sure that you can secure your supply chain for other markets outside of Victoria. Just broadly speaking, what do you think that Visa needs to do over the next two to three years to make sure that that's in place, please?

We have supply positions into all our markets in any case and so it's just traditionally we've taken supply from other refineries in some markets. So personally obviously I'm only traditionally taking supply from BP's refineries there and so that's a change for us. have options to continue to take supply from them or import in our own rights into the import facility that we operate out of in Perth. So those are choices that we need to make. Perth is a third party facility that we use outside of Perth. In other markets we either have a mix of our own facilities or again third party facilities that we use. Well, our position is just that the flow of the molecules, from an infrastructure perspective, it's just that the flow of the molecules might change now that there's no longer refineries in some of those markets or in Perth market.

Okay. So am I right in saying that that doesn't seem like a very capital-intensive process to do that? No, it's not a capital-intensive process for us, no. Okay. Thank you. That's all I have.

Your next question comes from Michael Simipos with Jeffrey.

Oh, hi, guys. I've just got a housekeeping question, if I can, relating to the new segmentals, in particular retail and commercial. What exactly is in your retail volumes and retail earnings? So, obviously, there's the alliance. But then what else is in there in terms of the volumes for retail and then unions?

Yeah, so retail is very straightforward. It's really all of our Shell and Liberty branded networks. So that's the Alliance platform, it's the Liberty convenience platform and it's what we call owner-dealer platform which is owned by independent retailers that carry either the Shell brand or the Liberty brand. That's the sort of business that's incorporated in the retail platform. Sales through other branded competitors, because we obviously have a reasonable wholesale business as well, as well as through distributors and the like, now fits in the commercial business.

Okay, so even sites which are Shell branded, for example, but you don't control pricing, you still book through the retail platform?

Correct, because we do lots of that control pricing. We control the brand. We control the products that they sell. And so we have a... The fuel products they sell, I should say. And so that's, you know, part of a sort of broadly controlled retail network, if that makes sense.

All right, Doug, thank you.

There are no further questions at this time. I'll now hand back to Mr White for closing remarks.

Thank you all for joining us this morning and for your questions. As I mentioned at the beginning of the session, I am really pleased with the way the business has performed throughout the pandemic last year and in the results that were delivered in the first half of this year. We have a retail business which continues to deliver underlying growth and a commercial business which has demonstrated, I think, remarkable resilience despite some challenging conditions in some sectors. As I mentioned, our retail business Our refining business has emerged from COVID with a revitalised future and we do have a number of exciting projects which will provide growth opportunities within the broader energy hub of the Refinery of the Keys heart. I'm very pleased to be able to return dividends for this heart and to complete the return of capital from the divestment of our stake in Ray Point Reef. The changes to dividend policy and reporting segmentation will provide more transparency and consistency moving forward. and we very much look forward to speaking with all you all at our event today, a bit later in this year. Thanks again for your support, and have a great day.