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Operator: Thank you for standing by, and welcome to the Ampol Limited Full Year 2025 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Matt Halliday, Managing Director and CEO. Please go ahead.
Matthew Halliday: Thank you. Good morning. My name is Matt Halliday. I'm the Managing Director and CEO of Ampol Limited. Welcome to our 2025 full year results call. During the presentation, we'll be referring to the documents lodged with the ASX this morning. Before beginning, I draw your attention to the notice on Slide 2. I'm joined by our CFO, Greg Barnes, who will discuss the financial results in more detail. I'll start on Slide 4. In 2025, personal safety performance in Convenience Retail and Z continued to trend at close to historical best levels. And as we said at the half, while we did have some incidents related to electrical safety in New Zealand, they did not result in injuries. In response, Z conducted a standdown for safety, and we initiated a contractor safety uplift program to reinforce safe work practices. In F&I, we have seen a small increase in incidents, which led us to initiate a safety reset to refresh our safety management processes. Our commitment remains unchanged, ensuring every team member goes home safely at the end of each workday. Turning to process safety. We had 1 Tier 1 and 2 Tier 2 incidents in F&I. The Tier 1 was a loss of crude oil from a tank due to damage during Cyclone Alfred, which was safely contained in the bund, as designed. Repair work continues to replace the tank roof and there were no injuries. Our teams right across the business managed the preparations and aftermath of Cyclone Alfred, with the professionalism that I believe is a trademark of the Ampol team. Turning now to the performance overview on Slide 5. Looking at our financials first and with all numbers quoted on an RCOP basis, EBITDA was $1.4 billion, EBIT $947 million and NPAT $429 million, excluding significant items. EBIT was up more than 30% and NPAT more than 80% on prior year. Convenience Retail continued its consistent growth trajectory, delivering EBIT of $374 million, which was up 4.8% on prior year. Over the past 5 years, the team has delivered an EBIT average annual growth rate in excess of 5%, demonstrating the strength of our retail model, our focus on premium fuels and our improving in-store execution. Premium fuels now represent 56.5% of retail fuel volumes, supporting higher fuel margins, while shop gross margin increased to 40% post waste and shrink. It's this track record which gives us confidence that we have the capability to drive value from the EG acquisition, which is currently going through the ACCC clearance process. In F&I, EBIT more than doubled to $406 million. Lytton returned to profitability, delivering EBIT of $163 million, following reliability improvements implemented in late '24 and a stronger second half margin environment. These outcomes reflect deliberate decisions taken to improve operational performance and resilience. As part of the F&I result, our infrastructure-backed commercial business in Australia also grew EBIT by over 8%, benefiting from some repositioning of its portfolio and a sharpened focus on returns. The New Zealand business delivered EBIT of $234 million, broadly in line with the prior year despite a more challenging third quarter in a weak economy. Importantly, earnings recovered strongly in the fourth quarter to levels consistent with the first half quarterly run rate, demonstrating the underlying resilience of the business. From a balance sheet perspective, leverage has returned to within our target range at 2.3x adjusted net debt to EBITDA. This positions us well to progress our strategic priorities, including the proposed acquisition of EG Australia while continuing to deliver returns to shareholders. The Board declared a final dividend of $0.60 per share fully franked, bringing total 2025 dividends to [ $1.00 ] per share fully franked, reflecting confidence in the sustainability of our earnings and balance sheet. This is an increase over the $0.65 per share paid last year. Thank you. I'll now hand over to Greg.
Greg Barnes: Thank you, Matt. Good morning, everyone. I'll turn to Slide 8, where you can see the detail behind total fuel sales volumes. All in all, we're pretty pleased with the underlying sales volumes during the year that reflect not only our focus on profits and returns, but also the resilient nature of our value chain. At a headline level, two factors need to be taken into account. Firstly, Australian wholesale volumes were down modestly once the movement in the very low-margin industry buy-sell arrangements are taken into account. And secondly, as communicated throughout the year, rolling geopolitical uncertainties created significant volatility. This led to the Ampol team focusing its efforts on risk and margin management to take a more targeted approach to discretionary activity and to prioritize securing barrels efficiently for the Australian and New Zealand system. In terms of each business, the Australian wholesale volumes ex buy-sell were down 2.6%. This was predominantly in our third-party retail sales channels. Importantly, Australian wholesale volumes were up 3.2% in the fourth quarter compared to the prior corresponding period, giving us real momentum coming into 2026. Within Australian wholesale, our B2B volumes were in line with the prior year and were the source of the wholesale volume momentum in Q4 and into 2026. Australian Convenience Retail continued to focus on the premium end of the market. This strategy, combined with continued improvements at the store level has seen profits grow consistently, but at the expense of largely base grade petrol volume. And while the U-GO strategy is on track, with 19 of 46 Australian U-GO in market for the full 12 months, it had a modest impact on group volumes. And Matt is going to come back and talk more to that later. The segmented strategy in New Zealand is proving effective. Volumes for the year in New Zealand were flat, which is a great result in a tough economy for much of the year. If I turn to Slide 8, you can see the group P&L in some detail -- sorry, Slide 9. Looking at the full year result, the group delivered EBITDA of $1.44 billion, which was up 20%, and it delivered RCOP EBIT of $947 million, up 32% year-on-year. We reported an RCOP NPAT before significant items of $429 million, which was up 83% and a statutory NPAT of $82 million. The statutory result includes $136 million of inventory losses after tax, reflecting the adjustment to bring cost of sales to the historical cost for statutory accounting purposes in a period where refined product prices trended down over the period. Significant items were $210 million after tax. I'm going to expand on two key contributors, and I'll refer you to Slide 44 for further detail later. Firstly, the simplification of Energy Solutions contributed to significant items, where we incurred a one-off restructuring cost and unwound unrealized gains on electricity derivatives that had previously gone through significant items. In return, we received cash proceeds of $70 million for divestments of the Australian and New Zealand electricity businesses. Secondly, we recognized a noncash impairment of our investment in SEAOIL. While the Philippines remains a growing market for fuel, the country has seen a substantial uplift in storage capacity and competition in recent years, particularly since the invasion of Ukraine. So while our outlook for the business is in line with current performance, we have tempered our view on the growth beyond current performance in terms of outlook for the foreseeable future. This has led to a noncash impairment of $90 million. Importantly, this does not take into account the value of supply by Ampol into SEAOIL and the region more broadly, the value of which sits in other divisions within the group. Slide 10 just gives you an overview of the key movements in group EBITDA and EBIT. I'm going to dive into each of these in subsequent slides. As I said, the contribution to the group's earnings growth was quite broad-based, which is really pleasing. And to build on Matt's earlier comments, the consistent growth in Convenience Retail over several years and the successful acquisition of Z Energy and its subsequent performance has strengthened both the quality and ratability of Ampol's earnings base. Similarly, F&I Australia also performed well and Lytton took advantage of stronger margins in the fourth quarter. Our trading and shipping capability in Singapore and Houston played an important role in the group in 2025, securing crude sustaining supply during Cyclone Alfred and leveraging the short into Australia and New Zealand while managing risk to ensure each business' competitiveness. The vast majority of the contribution to the group resides in those divisions. However, third-party volumes, which is what is reflected in F&I International, were down. Our expectations for this part of the business were well telegraphed and International finished down $15 million in EBIT terms for the year. As we announced at the half year, we refocused our efforts in Energy Solutions to concentrate on EV charging. This is reflected in the $10 million improvement in 2025. We're expecting further benefits in 2026, as the full year effect of these decisions flows through to earnings. So if we look at each business, we'll start on Slide 11, which shows the continued growth in earnings for Convenience Retail. Convenience Retail has delivered 5.4% annual EBIT growth since 2020, including almost 5% earnings growth this year. Ultimately, this consistency boils down to a few key drivers. The high-grading of the Ampol Foodary branded network. We've also built significant capability in the organization, and we've repositioned our offer and lifted our in-store execution. You can see this playing out in the metrics on Slide 11 that drive our profitability. We've seen consistent increases in our mix of premium fuels. In 2025, the mix of premium fuel volumes increased by 1.1 percentage points to 56.5%, helping grow overall fuel margin year-on-year. The good progress in shop performance continued with shop sales ex tobacco, up 2.8%. The strong store performance has come via growth in high-margin categories like beverages, chilled perishables, bakery and general merchandise. On tobacco, sales fell over 20% during the year as the new public health rules and packaging came into force. That accelerated the move of this category into the illicit market. Having reduced our reliance on tobacco sales over the years, it now represents 16% of total store sales and 3% of total fuel and shop margin. As you can see, the contribution of these dynamics plays out in the average basket value and gross margin percentage. To maintain average basket value in line with last year, given the tobacco decline is another terrific result. This has been driven by effective price and promotions management, including a deeper understanding of attachment in executing these activities. Similarly, the changing product mix through growth in high-margin product categories and falling volumes in low-margin tobacco has led to store margins growing 2.7 percentage points year-on-year. Slide 12 provides more color on the key contributors to Convenience Retail growth. As we discussed, earnings growth year-on-year was driven by the continued focus on premium fuels and our consistent prioritization of profitability over volume is continuing to pay off. Store income grew on nontobacco performance and ongoing productivity initiatives in terms of labor and rostering, as well as the benefits of the U-GO model on premium -- on previously underperforming stores. Slide 13 shows the trends in New Zealand's key retail metrics over the past 6 years, including the time before Ampol acquired Z. This slide is presented in New Zealand dollars. It was another very good year for New Zealand given the backdrop and the challenges in that economy for much of the year. As we flagged in our third quarter trading update, we had a disrupted Q3 in terms of trading and competitive behavior. While it's not entirely clear what led to this disruption, it did coincide with a step-up in unfuel site conversions -- or unstaffed fuel site conversions, I should say, including U-GO, combined with structural or transaction-related activity among competitors. Had it not been for this, New Zealand would have exhibited similar trends to our Australian Convenience Retail business in year-on-year terms. This was evident in Q4 and is continuing into the new year. Z store refresh strategy is working and is a contributor to growth in total shop revenue, notwithstanding the U-GO conversions. Sales growth was in nontobacco categories, while tobacco sales remained flat year-on-year, which is obviously a very different experience to what we're seeing in Australia. That improved mix led to gross margin increasing to 33.7%. Average basket value on the bottom right graph peaked during the height of COVID, but has been consistent over time. Z, like the Australian Retail business, is focused on higher-margin on-the-go categories such as food and beverages. As I said earlier, fuel volumes were quite stable during the year, and the benefit of segmentation strategy was evident with an uptick in the discount channel through the relationship with Foodstuffs and our own launch of U-GO. On Slide 14, you can see the waterfall for the New Zealand segment. This is inclusive of supply benefits for our trading team, which are incorporated into the integrated fuel margin. It's also presented in New Zealand dollars. Integrated fuel margins grew over the period. Given the lower penetration of premium fuels in New Zealand and a generally price-sensitive consumer, this is a very good outcome. The sale of our interest in Channel Infrastructure completed in March 2025. And as a result, we did not receive the final dividend explaining the variance year-on-year in the waterfall. We did, however, receive a $3.4 million interim dividend prior to disposal. That will not repeat having now divested of that business. If we turn to Slide 15, we'll take a further look at the Lytton result. You can see how the refinery benefited from the improvement in refiner margins throughout the second half. Improved reliability enabled the refinery to capture these benefits as well as the benefit from increased production compared to the prior year. Product improvements have also been -- productivity improvements have also been a real focus for the team, and you can see the OpEx savings reflected in the waterfall net of inflation. So we're now on Slide 16. Similar to New Zealand, F&I Australia is our Australian fuel supply chain downstream of the refinery and includes our commercial fuels and the benefits of trading and shipping into this market. It's pleasing to see the recovery in performance. The Australian supply chain was also a beneficiary of improved refinery reliability in terms of not needing to source more product domestically at short notice. As I mentioned earlier, adjusted for [ buy/sold ] movements, total sales volumes were 14.7 billion liters, with Australian wholesale ex of the net buy/sell was down 2.6%, largely in retail third-party channels. Slide 17 shows the F&I International result, and that business leverages Australia's and New Zealand supply chain positions to create additional value in other markets. In 2025, due to the escalation of geopolitical tensions, tariffs and changing sanctions, we focused the team on supplying the Ampol short in Australia and New Zealand with earnings from these activities flowing to their respective P&Ls. As the team's focus was mostly directed away from discretionary activity, third-party earnings were lower. As we've mentioned before, this part of the business consumes little capital, provides the potential for significant upside and is ultimately part of a team that delivers significant value across the rest of the Australian and New Zealand supply chain. On Slide 18, as the strapline says, we finished the year back within our targeted leverage range. This is a great outcome. And it obviously positions Ampol ahead of our anticipated completion of the EG acquisition in the middle of the year. That, of course, is subject to regulatory approval. We exited the year with net borrowings of just over $2.9 billion. Now this was inclusive of net CapEx of $563 million this year, and that's a year where we saw CapEx investment peak given the activity at the refinery and major investments in Convenience Retail. We're able to partially mitigate the cash outflows through divestments, which provided $175 million of cash inflows, primarily via the divestment of Channel Infrastructure and the sale of Flick and the Australian energy businesses. I'll also note that the second phase of our minimum stock obligation or MSO obligations added about $100 million to working capital during the year. Finally, before I hand back to Matt, I just wanted to update on our funding platform, particularly as we look forward to the completion of EG Australia, subject to the commission's approval. Firstly, I'd like to acknowledge the terrific job the treasury team has done again this year. Their efforts and Ampol's consistent approach to capital allocation have been rewarded. A few highlights include Moody's support for the EG Australia transaction, which they've noted is credit positive. We've also entered a subordinated note arrangement in Q4 2025 that was both attractively priced and removed the equity conversion feature that existed in other previous notes. And finally, towards the end of the year, we also entered an additional subordinated note with similar terms to the other note I just referred to and also included a unique deferred drawdown mechanism. This means we have the flexibility of drawing this note down during 2026, without incurring the cost of carry, while securing attractively priced terms now. Once an existing note matures in 2026, our maturity profile will extend from 4.1 years to 5.3 years. This will extend further in 2027. This is a great place to be with over 5 years of maturity profile, average maturity profile, a more diversified counterparty list and on more attractive terms. So with that, I'll hand back to Matt and come back for questions.
Matthew Halliday: Great. Thanks very much, Greg. Turning now to our strategic priorities on Slide 21. Our strategy remains clear and consistent, built around 3 pillars: enhancing the core business, expanding a rejuvenated fuels and convenience platform, and evolving our offer in line with customer needs. Under the enhanced pillar, we are focused on maximizing the value of our existing assets. At Lytton, the priority has been reliability and disciplined execution. The actions taken in late '24 and through '25 have delivered tangible results with the refinery returning to profitability and operating more consistently. Looking ahead, the commissioning of the ultra-low sulfur fuels project in 2026 will further strengthen the resilience and long-term relevance of the asset. We also remain focused on productivity across the group. In 2025, we delivered our $50 million nominal cost reduction target, helping to offset inflationary pressures. After adjusting for the impact of bonuses, the productivity steps we took more than offset the impact of inflation in 2025. Under the expand pillar, our priority is growing earnings from our fuels and convenience platform. In Australia, we continue to execute our segmentation strategy across the retail network. The performance of our U-GO sites and the sustained earnings growth in Convenience Retail demonstrate that this strategy is working and scalable. The proposed acquisition of EG Australia is a natural extension of that strategy. While the transaction remains subject to regulatory approval, our focus has been on preparation. With leverage back in our target range, we are well positioned to progress the acquisition and following approval to commence integration in a controlled and value-focused manner. In New Zealand, we are continuing to refine our segmentation strategy, supported by the rollout of U-GO sites, premium store refreshes and the continued development of the Z Rewards loyalty program. These initiatives are aimed at strengthening customer engagement and supporting earnings growth comparable to our Australian Convenience business over time. Under the evolve pillar, we are taking a pragmatic and disciplined approach to the energy transition. We have simplified the Energy Solutions business to focus on areas where we see the clearest pathway to value creation. Our public EV charging networks in Australia and New Zealand continue to grow, and we will adjust the pace of investment in line with customer uptake. We are also progressing opportunities in lower carbon liquid fuels for the hard-to-abate heavy transport sectors and developing a view of available returns, which will ultimately depend heavily on the policy settings that are in place. Now on Slide 22. We remain excited about the delivery of U-GO. Sites in Australia are delivering more than 50% fuel volume uplift, average EBITDA improvements greater than $350,000 per site and payback periods of around 1 year with CapEx around $280,000 per conversion. Our observation is the sites take roughly 6 months to ramp up to maturity, and we view U-GO as a scalable model that supports continued segmentation and high returning earnings growth, as well as creates an important source of value for EG. Moving now to Slide 23. We strongly believe in the potential for the proposed EG acquisition to accelerate our network segmentation, including scaling of both U-GO and premium formats. The identified $65 million to $80 million of synergies are predominantly cost related with further upside potential when you benchmark that network to our own comparable site performance. The strong performance of our own retail business gives us the confidence in the integration to deliver on this potential. The completion of the acquisition is on track for mid-'26. We are currently in Phase 2 of the new merger regime with an announcement of the notice of competition concerns due shortly. Critically, the test at the end of Phase 2 relative to Phase 1 is whether the transaction would rather than could give rise to a substantial lessening of competition. Ampol remains confident in its position and is working constructively with the commission during this phase. On Slide 24, we show that transport fuel demand in Australia and New Zealand remains near all-time highs, with growth driven by diesel and jet offsetting the gradual decline in gasoline. The demand profile supports the long-term relevance of Ampol's integrated supply chain, especially when transition options look to be pushing out as the complexity and cost of this challenge becomes clearer. I'll now talk to our key priorities for 2026 on Slide 25. We are focused on delivering the EG Australia acquisition and commencing delivery of the targeted synergies. At Lytton, we expect to commence commissioning of the ultra-low sulfur fuels project in Q2 this year. We are also focused on closing out Phase 1 of the FSSP review and then engaging with government on a broader review of the industry in Phase 2 to determine the longer-term settings required to enable ongoing investment. We remain focused on productivity, and we'll build further on our track record of continuous improvement to deliver a further $50 million of nominal cost reductions across 2026 and '27. In 2026, our aim is to again offset the majority of inflation and more than offset it at Lytton. We will continue to build momentum in executing our retail strategy and segmentation in Australia and New Zealand, building on our track record of growing earnings. We will also continue to advance our EV charging business and explore lower carbon liquid fuels in both cases at a disciplined pace aligned to demand and with a commitment to appropriate returns. I'd like to close out today with a view of the current trading conditions on Slide 26. We have started the year very strongly, particularly in Convenience Retail in Australia and in New Zealand, reflecting higher retail margins and continued strength in shop performance. F&I ex Lytton has also experienced a strong start. At Lytton, January LRM has weakened relative to a strong Q4 in 2025. We remain mindful of the normal seasonal dynamics in global refining markets, particularly for gasoline and continue to expect volatility in global oil markets driven by geopolitical uncertainty. It remains the case that the integrated nature of our supply chain provides flexibility and resilience in managing these conditions. Current margins also reinforce the importance of the FSSP to reduce downside volatility, and we expect Phase 1 of the review with government to be finalized in the first quarter. For 2026, we expect net CapEx of around $600 million, reflecting continued investment in safety and reliability, growth opportunities in retail and the scheduled refinery turnaround and finalization of the low sulfur fuel upgrade. I'm now on Slide 28, and I'll finish with why we believe Ampol represents a compelling investment. First, we have built a higher quality and more resilient earnings base. Over the past 5 years, we have deliberately grown our fuel and convenience earnings in Australia and New Zealand, supported by strong retail execution and the acquisition of Z. Convenience Retail has delivered an EBIT CAGR of more than 5% over that period and fuel and convenience earnings are now a core pillar of the group, representing around 2/3 of earnings on an EG pro forma basis. Second, fuel demand fundamentals remain supportive. Transport fuel demand in both Australia and New Zealand is at or near all-time highs, led by diesel and jet growth. These products represent the majority of our volumes underpinned by the critical and hard-to-abate sectors such as freight, aviation, and mining. Third, we own and operate an integrated fuels value chain backed by high-quality strategic infrastructure that underpins the efficient and reliable delivery of fuel into highly ratable demand from our retail and commercial customers. The value of this infrastructure in underpinning resilient and secure fuel supply in an increasingly challenging geopolitical environment should not be underestimated. Fourth, we have a clear and disciplined growth pathway. Our segmentation strategy in retail is working in Australia and New Zealand as demonstrated by the performance of U-GO and our premium offer. The proposed acquisition of EG Australia extends that strategy, enhancing scale and accelerating value creation. Fifth, we are approaching the energy transition pragmatically. We are investing where we see clear customer demand and returns while maintaining the flexibility to adjust the pace as markets and policy evolve. And finally, we are disciplined in capital management. Leverage is back within our target range. We maintain a strong investment-grade balance sheet, and we have a proven track record of returning capital to shareholders while investing for growth. In short, Ampol combines resilient fuel demand, improving earnings quality, strategic infrastructure and disciplined capital allocation. We believe that positions the company well to deliver growing higher-quality earnings and shareholder returns over time. That ends our presentation. Now Greg and I will take your questions, and we also have Brent, Kate, Lindis, and Michelle online, and I may direct questions over to them. With that, we'll take our first question, please.
Operator: [Operator Instructions] Today's first question comes from Michael Simotas with Jefferies.
Michael Simotas: Can we start with U-GO, please? It looks like a pretty pleasing outcome so far. It's not often in this space that you get more earnings upside than you expect with less investment. But can you just give us a little bit more color on how you're measuring that $350 million -- sorry, $350,000 earnings uplift on presumably the 19 sites that you had in place for the full year? And maybe just a little bit more direction around what happens with retail fuel margin. You've given us some detail on volumes. So anything else you can do to help us understand the upside there, please?
Greg Barnes: Thanks, Michael. Maybe I'll -- it's Greg here. Maybe I'll take it at the first cut. So look, as you say, we're really pleased with it. We are seeing -- it's taking a few months, about 6 months for the local market to settle when we convert to that operating model, but we're really pleased with the success we're seeing once it takes hold. The way we're comparing it is we're comparing sites, the exact site pre and post the conversion. And obviously, the first layer of benefits is the removal of store labor net of store margin foregone and then fuel, the value of fuel margin at a sharper price across the 50% or higher uplift in volume we're seeing. In terms of pricing, I think, was the other part of your question. I won't get too specific on it, but its objective is really to compete in that second-tier typically franchise operator end of the market. So it's proving effective there in terms of its -- the volume we're seeing and also in terms of its product mix, which skews towards base grade petrol volume, which is obviously when you look at our headline volumes is where we've leaked a little bit of volume, but we've done it at the expense of site profitability. So I think the thesis is playing out well. And our Ampol Foodary network is continuing to go from strength to strength. So we're very confident we've got the balance right, and it lends itself nicely to EG once that we get through the regulator there. So hopefully, that answers your questions.
Michael Simotas: It does. Just one question it does raise though. The $350,000 uplift, does that include some ramp-up for some of the sites? Or have you adjusted that number for that?
Greg Barnes: So the $350,000 is basically an annualized number once you're through that ramp-up period.
Michael Simotas: Okay. Second question on the debt. Your debt came in quite a bit higher than what consensus was expecting. Now there's a lot of moving parts in that and oil price, et cetera. You've talked about $100 million investment for the second stage of MSO. Is there anything else that's sort of a temporary factor pushing debt up or anything else we need to think about in terms of more working capital investments going forward?
Greg Barnes: So there's nothing that's coming up. I think what's been a feature in the industry over the last few years, it's not unique to this year, has just been that supply chains have lengthened, right? So it's -- the product isn't all coming out of the region. It's coming from further afield. That's both an advantage to Ampol, from a margin perspective, in terms of leveraging our infrastructure and our ability to bring LR or larger ships into the country and unload on a lower per unit cost landed. But it does mean at times, you've got longer -- the product on the water, perhaps when previously you didn't. So you do have longer supply chains. That's been a feature for a while. But this is the sort of the second lift in MSO. So that's been a feature over the last couple of years. I don't think we've made any secret that we're going through a period of step-up in CapEx. I think that's been well telegraphed. But other than that, they're the 2 primary drivers. And probably the third is after a period of very limited tax payments, the company has been back in a tax payable situation in recent years as well. They're probably the big drivers if you look through the last couple of years.
Operator: Our next question today comes from David Errington at Bank of America.
David Errington: I don't know who this is Matt or Greg. You've lost me a little bit on the fuel volumes. When I look at Slide 24, it looks to me as if the Australian and the New Zealand markets are growing. Yet when you look at your slide on Slide 8, you're taking quite a big hit in particularly Australian wholesale. Greg, you lost me a little bit on this buy-sell stuff and your wholesale is down 2.5% because what worries me is that you are leaking a lot of volumes. And I know that's base grade petrol. And I know you've got a strategy and it looks like a winning strategy with U-GO. But that does concern me how much volume you are leaking in generally all markets, whether it be diesel, whether it be petrol, whatever. Can you just go through your volume strategy, please? Because to me, what worries me with a very high fixed cost base is that leakage in volume. And even when you take into account buy/sell, which I don't understand, you're still down 2.5%. So can you go through that whole volume equation, how it relates to margin and how it fits in with the whole strategy? Because you are leaking market share by the looks of your own statistics that you've provided in the pack.
Matthew Halliday: I'll start and Greg can build, David. Yes. Look, we -- if you set aside the buy/sell, which I think is a temporary factor around Perth, in particular, in the second half of last year, yes, our volumes were down as we repositioned the portfolio. There are some particular drivers to that. But critically, and as we called out in our trading update and Greg called out in his notes, we saw growth in Q4. So B2B volumes were up around 3.2% in Q4, and we're seeing strong momentum there. Yes, there are some -- there is a drag in -- certainly in the retail-linked channels and EG has been part of that, that won't surprise you. When we look at U-GO, when we look at the strategy and the proposed acquisition of EG and the momentum that we have within the business to exit the year and start this year, we're pretty confident in the volume trajectory that we have in the underlying business.
David Errington: So look, you're expecting that to turn around in '26, we should start seeing volumes growing. Would that be a fair call? Or do you think you're still you've got a bit of leakage there elsewhere? I don't know, what...
Matthew Halliday: No, that's what we expect to see. We exited -- Q4 showed for our B2B volumes 3.2%. We continue to see growth and flowing through the start to this year, and that helps support the commentary we've made in the outlook statement. So I think we're well positioned when you look at the strategic steps we're taking with U-GO and obviously, EG is an important response to that. And the wholesale business is demonstrating good momentum to exit the year and start this year.
David Errington: Second question I've got is around the CapEx and particularly when I look at this relating to the depreciation. Now I'm not asking this question from a negative angle. I'm actually asking it from a positive angle, hopefully. Hopefully, you take it that way. But you look at your CapEx to depreciation ratio and when I look at your annual report, your actual depreciable assets are less than $300 million. I mean you've got right-of-use assets there, but I'm assuming that's probably rent. So you're running CapEx well above 2x depreciable assets. Now can you give us a bit of an outlook as to how much of that is growth CapEx that we can expect in the next FY '26, '27, '28, where we can expect cost efficiencies coming through, we can expect growth coming through. So can you give us a bit of an outlook? I don't know if this is -- Greg, this is your domain. How much of that CapEx, which is another $600 million in '26, which is a high number, how much can we expect that to be leveraging into future growth as opposed to just stay in business? Because that 2x depreciation is a big number, and I'd like to see growth really picking up in the near future -- from that number. I don't know if you can elaborate on that. That's probably more of a statement than a question. But if you could elaborate on that, it is an issue that some investors are raising that high CapEx number.
Greg Barnes: Yes. So look, maybe I'll have the first crack and there's lots of threads to that question. So we run the risk of going down a deep burrow quickly. But the short answer, as I would put it is, I would expect this business in a normal year to be doing something in the order of $450 million of capital expenditure. So the delta over and above that. Now that will always have an element of year-on-year growth CapEx in it like the rollout of EV charging and things like that. But $450 million is about where this business would operate in a normal year. The delta is a combination of highway sites that we've invested in. So the M1s Pheasants Nest in New South Wales and most recently, the Eastern Creek or M4 sites and the required upgrade to the refinery for the low sulfur fuels project, which has been the bigger single contributor to that. And that project comes to an end in 2026, as Matt outlined. So they're the big drivers. We have all the usual investment hurdles you would expect on growth CapEx. And as we telegraphed previously, we expect low sulfur fuels will add value to the earnings line. But the key thing is we expect that CapEx to return to something in the order of $450 million once we're through the project in the middle of 2026.
Operator: Our next question today comes from Adam Martin at E&P.
Adam Martin: Just back on U-GO, I'd interested in sort of what distribution of sort of performance you're seeing -- [ U-GO ] the other day. It looks like the competitors that all sort of dropped down to the same sort of pricing that U-GO was running and sort of thinking here about Tier 1 type operators. So I'm just wondering whether you are pulling down fuel margins across the industry. But yes, just what's the distribution you're seeing, please?
Greg Barnes: Yes. Look, it varies, but what is consistent is an improvement in performance. That's the first thing I would say. And you always get the benefit of any sort of labor savings over the store margin that's your first hurdle. There is -- it's very difficult to get specific, but it is -- it does vary. So what I'm presenting is an average, but they are all performing above their benchmark performance, i.e., pre-conversion. That's the first step. There is nothing about what we're doing that is, for one of a better term, pulling prices down. What we do is we participate based on the quality of the site and given a local competitive dynamic, but it's typically pegged in line with what you would call some of those sort of second-tier players. So -- and it looks to compete there with a differentiated offer, i.e., unstaffed, but on what is typically higher quality dirt strength and a consistent experience. And that's what the Ampol brand presents: affordable fuel, a consistent, simple experience and good site quality and access, which is why it's doing very well. I think the other data point I would say is our Ampol fuel margins. And we're in a competitive segment, if you call the Tier 1 end of the market as a separate segment, that's competitive. And what you're seeing strong consistent fuel margins playing out there in part by virtue of our increase in premium fuel mix and then we're mopping up some of that discounted base grade unleaded through U-GO. But of course, we only had about 19 sites in market for the full 12 months. But we're really encouraged by it and not concerned about the impact on the market.
Matthew Halliday: The only thing I'd add, Adam, to Greg's answer is U-GO does have a fundamental cost advantage in the market and the inflationary pressures are flowing through the rest of the market. So while Kate and the team have managed their cost base very well, so offsetting almost all inflation during the year and U-GO is an important part of that, but not all of that, the rest of the market is incurring significant cost inflation. When we look at the retail fuel margin environment, that's fundamentally what's driving it.
Adam Martin: Second question, just international trading. It's obviously a difficult one to model. It felt like the message coming from the company last year, second half of the year that things are sort of improving a bit. I mean, you've previously talked about sort of high refining, better trading, all that sort of stuff. I mean, what can we expect in '26? Should we just expect pretty much what you did last half? Or are things going to start to improve there, please?
Greg Barnes: So I'm happy to take it in the first instance. It is difficult to telegraph outcomes for a business that is largely opportunistic in terms of capturing opportunities and arbitrage opportunities when they arise. So we are being cautious in what we've said. I think what I would call out is second half on the same period the prior year was up. But in a market that is really the hallmark of the market is at the moment that the volatility is being driven by short-term new cycle events, not by just your typical sort of deviation from fundamentals that open up those arbitrage opportunities. And when you're a business that's managing within tight risk settings, you tend to want to take a more targeted view in your approach. And you're seeing that play out in volume, and you're seeing that play out in profit, notwithstanding the fact that one trading and shipping team is adding significant value elsewhere. So I think over time, you'll see that business recover, but I'm not one for telegraphing what's going to happen with geopolitical events and pronouncements week-to-week because it is varying a lot at the moment. So we'll stay cautious and take opportunities where we see them within our risk settings. There's anything you want to build?
Matthew Halliday: I think that's a good summary.
Operator: Our next question comes from Dale Koenders at Barrenjoey.
Dale Koenders: Just wondering about the SEAOIL impairment. Why is that done now? What's the outlook for the rest of the business? And sort of what is the profit level that it's kind of making at the moment?
Greg Barnes: Yes. Okay. I'll kick off again, Matt, you pick up anything you want to add. Look, we're actually -- the business is performing. Our view of outlook really doesn't deviate from the sort of performance we're seeing today and what we've seen over the last couple of years. It isn't quoted publicly. And I hasten to add, we're a 20% shareholder in this business. It wouldn't be appropriate for us to talk in a lot of detail about the performance of that business. Suffice to say, our view on outlook doesn't really differ from where it is today. What has changed is a combination of both capacity in terms of storage and the attractiveness of this market to traders as fuel volumes rebalanced around the region and the globe post the Russia invasion of Ukraine. They are the few -- the key drivers. Our carrying value invariably -- and the original investment case had more optimistic assumptions in terms of outlook. And after a couple of years where those assumptions aren't being realized, even though it continues to trade consistently, you're just not seeing the uplift you may have forecasted internally. Really, the accounting standards don't leave you much scope, and that is you need to mark the business back to what you are seeing. And hence, we took a noncash impairment. I would not take that as a view on its performance deteriorating from where it is today. That is not our view. And just to give you a guide, its current -- its revised value would be something in the order of our share of 6 turns or less of EBITDA for that business. So invariably, once you called on to do this, you take a reasonably conservative view of that business. The only other build is we supply into SEAOIL and specifically, but also more broadly into the region on the back of that volume. That value sits in our trading and shipping business and remains there, and that is not being taken into account when we've impaired the asset.
Dale Koenders: Secondly, Greg, you've made the comment around sort of Australian wholesale fuel volumes down 2.6%, primarily retail reseller levels, which I assume is EG, and that sort of share of volume then implies EG volumes could be down in the order of 5% to 10%. How are you thinking about the earnings which is for the business in Australia that you've quoted at a 2024 level, but not revisited? Is there a risk that, that EBITDA is disappearing on you?
Greg Barnes: I mean, again, we don't own the business. And so I've got to tread carefully. What I would say is our expectations for that business under our ownership have not changed and -- nor has our view of either earnings or cash flow accretion relative to what we said at the time of the announcement. Having gone back to triple check that last night, we stand behind the direction we gave at the time of that acquisition. You probably have noticed that the sector more broadly has seen some margin expansion. And you would imagine that, that business has been a beneficiary of that, and we haven't seen any real shift in their underlying earnings performance. I'll probably just leave it at that.
Matthew Halliday: Yes. Everything we've seen, Dale, I would say, relative to when the deal was announced has only reinforced our conviction in the value we can deliver from that acquisition.
Operator: Our next question today comes from Tom Allen at UBS.
Tom Allen: I might just follow up with a couple of earlier questions on the balance sheet. So to 2.3x, I should say, adjusted net debt to RCOP EBITDA and then guiding higher net CapEx for '26 than what the market expected. Just on your current outlook for refining and noting that you've still got your hands full, obviously, with the Ultra Low Sulfur Fuels project and U-GO conversions. Can you just provide some color on the top 3 levers that could accelerate your deleveraging over the year?
Greg Barnes: Yes. So I mean, there's a couple of things that work. I mean, this business is typically quite a high cash generator. And we had a question earlier on CapEx versus depreciation. As we come to the end of this cycle of having both upgraded and secured new highway sites and invested in the low sulfur fuels program, as well as 2026 is a period of major maintenance for the refinery. Those 3 drivers are all largely coming to an end during 2026. We'll, of course, invest in convenience retail where we see value and opportunity. But those big programs are coming to an end. So I think I talked earlier the CapEx starting to cycle back towards $450 million, absent another growth opportunity that would shift that. So that in itself will start to contribute positively to cash flow. We do expect and we are seeing with low sulfur fuels, which we're producing now, we are seeing that product spec is scarce in market. That is going to be supportive of refining margins. I think that's a real positive for the business and the continued improvement you're seeing on a very broad-based form across convenience in Australia, the New Zealand business underlying, particularly if you look through Q3, but also the strong consistent performance coming out of our F&I Australia businesses, I think, are all very supportive. And we are in discussions, as you know, in review of the FSSP, which we would expect some sort of decision on that, or update towards the end of this quarter. And I hope to have more to say on that prior to updating on Q1 results in April.
Matthew Halliday: The only other couple of things I'd point to is we continue to remain very focused on productivity to offset more than inflation in our cost base in '25, I think, is a strong result, and we continue to remain absolutely focused on that through '26. And EG itself is a highly, highly cash accretive acquisition. So we talked in the order of not far off 20% sort of cash accretion metrics when we announced the deal. So EG and getting that deal done is also a big contributor.
Tom Allen: Just following up your comment on the FSSP Phase 1. So can you comment perhaps without predicting the outcome of that review, but what percentage change you think you've seen in structurally higher refining costs over the last 2 to 3 years? And how we might interpret that change in cost into a new margin mark or breakeven threshold at Lytton directionally?
Matthew Halliday: Yes. I think you can track costs over time in our results, Tom. I would say -- all I would say is there's an acknowledgment that costs have escalated, both in terms of operating costs and capital costs as far as the refineries are concerned. That's acknowledged, and we're in the process, and we're expecting that Phase 1 of that process to be finalized in the first quarter.
Operator: Our next question today comes from Henry Meyer at Goldman Sachs.
Henry Meyer: I guess CapEx, excluding the divestment proceeds for 2025 has come in a bit above guidance. Could you just step through what's driving that? I'm assuming it's to complete the Lytton upgrades and potential impacts from maybe not having online in time, Greg, though you say it is currently producing low sulfur fuel?
Greg Barnes: Yes. So we are producing low sulfur fuel, just not at full rates. And as we said, we're commissioning in first half of 2026. So in terms of your question, just remind me...
Henry Meyer: So CapEx...
Greg Barnes: The CapEx, yes. So I would -- I actually would hold the view that our guidance on CapEx during the year. We did lift it at the start of the year slightly, but we guided to sort of something in the low 600s this year. That was net of the channel infrastructure investment. What is new news in our $563 million number is the cash proceeds on Flick. So CapEx came in at a gross level around where our expectations were and I believe were communicated to the market reasonably clearly, notwithstanding we did provide an update earlier in the year. And the $600 million reflects both the T&I that we're undertaking on the cracker in 2026 as well as the completion of that project. Full stop, I think. Is there anything you want to add to that?
Matthew Halliday: No. And when we say we're producing low sulfur fuels, not from the new plant, which we expect to start commissioning in Q2, but the plant can produce some low sulfur fuels in its current configuration. That's what we're referring to.
Henry Meyer: Sticking on refining, it's been a pretty eventful start to the year for geopolitics and oil markets. Margins have come down a bit over the last few months. Could you just share any perspectives on how you're thinking the potential for more heavy oil grades from Venezuela or Iran could impact crude spreads, broader complex refining margins and the flow on to simpler refinery like Lytton?
Matthew Halliday: Yes, I might start briefly, and then I'll hand to Brent. What I would say is that in terms of the start of the year, and I made this remark in my comments, that gasoline, in particular, has started the year softly. The global system has effectively run strongly, and we're out of kind of turnaround season, but coming into it now and then the Northern Hemisphere driving season commences after that. So we're kind of in the cyclical phase of gasoline weakness, I would say, at the moment and middle distillate margins have actually -- or cracks have actually remained pretty strong. That tends to be a fairly typical part of the cycle, but I'll pass over to Brent to build on that.
Brent Merrick: Yes. Thanks, Matt. Yes, so areas like Venezuela, we don't see as too dramatic an impact in the overall availability globally. It's going to take a capital investment in that market to grow production. We do see it's destination changing as the U.S., as an example, likely take more versus what China has in the past. Over the last, say, 6 months, we have seen a change in the sweet sales spread for reasons outside of Venezuela and Iran, things like impact on exporting of things like -- grades like CPC Blend, which is linked to Ukrainian attacks on loading facilities. There's been outages in the North Sea. There has been impact on U.S. production as well. So there has been a move between sweet sales spreads over the last few months. But going forward, we don't see Venezuela really driving the spreads and the performance for our refinery. And obviously, the whole world is watching carefully on what unfolds in the Middle East at the moment. So we're clearly watching that carefully.
Operator: Our next question comes from Craig Woolford at MST Marquee.
Craig Woolford: My question relates to the metrics on your convenience business, so Slide 11, which are all tracking really well. It's been a great journey, as you highlighted. With that increase in basket value outside of tobacco, can you just talk through some of the categories that have contributed significantly in that part? And do you still see further upside in the shop gross margin if we were to strip out the tobacco impact?
Matthew Halliday: Yes. So I think I'll pass to Kate to give some more color, but I think it's been a pretty consistent growth in the food service categories, beverages, snacks. It's been fairly broad-based and consistent, which I think when you do look at that average basket value growth ex-tobacco, its CAGR over that 5-year period is nearly 6% pretty consistently. And I think it reflects growth in those high-margin categories, but I'll pass to Kate to give some more color on that.
Kate Thomson: Thanks, Matt. So average basket movement is primarily driven by beverages, fresh, confectionery and some food service and our QSR business is also performing well. In terms of margin growth, it's a split between mix and rate. So some of it has been tobacco mix, but also growth in those categories that I talked that are driving ABV. And then we've got rate improvements through Metcash, which hasn't had the full year come through yet and also rate on things like beverages and confectionery.
Craig Woolford: Second question is just on the outlook for net interest costs, mindful, not sure how to interpret the change of that disclosure on the merchant fees. And how should we think about capitalized interest impacts in 2026?
Greg Barnes: So you'll have your own forecast of debt. As you can imagine, CapEx will -- given our commentary on low sulfur fuels, CapEx should skew more first-half than second-half. And you'll capitalize that interest until that product is commissioned and then it will drop back to the P&L and the capitalized portion will play through in depreciation of that asset post commissioning. I'm not really in a position to sort of guide on debt specifically, but obviously, we're back in the range. We're coming into the acquisition of EG, one hopes in June. And we have telegraphed previously, we expect it to be back in the range within 2 years of that transaction.
Operator: Our next question today comes from Rob Koh at MS.
Robert Koh: So I think you've given us great detail on the non-tobacco convenience performance, and congrats on that. I wonder if you could also maybe give us some color on what is happening in tobacco. If I measure your charts and then look at your Slide 11, it looks like tobacco sales were down half-on-half quite significantly. Any light at the end of the tunnel?
Greg Barnes: So look, I think I said in my commentary earlier, volumes and sales were down 20% year-on-year. Now its margin and contribution at the site level to store, and fuel margin is now 3%. So over the last few years, through a combination of factors, it's now not a particularly material contributor to our profitability. It really accelerated when the fuel packaging and regulations and regime took hold in the lead up to that for 1 July or 30 June, it took hold really in that build. And there were sort of two tranches to it. One on sourcing of product, it was the first leg into April, and then the second leg was the sale of the previous packaged product in the second quarter. I wouldn't say it has eased. What you have seen, it's probably eased from its peaks, but we're still seeing volumes down year-on-year. What you are seeing in markets where there's been real active uplift in police activity to crack down on illicit trades in Queensland would be the standout is the decline has eased substantially. And that's probably all we can really say on that. The rest is really a matter for policy and the police. Yes.
Matthew Halliday: I would say, just building on that, you've had -- there's a lot of conversation around this. I think it's getting a lot more attention. You're seeing different regulations put in place or laws put in place across the different states. But I'd call out Queensland, as Greg just mentioned, is the one where we've seen enforcement be quite effective. We haven't yet seen a material impact flow through anywhere else.
Robert Koh: The next question I wanted to ask is in relation to your emissions targets and also maybe link that into the FSSP discussion. I'm reading here that you're going to resculpt your emissions intensity targets for Lytton to align with the safeguard mechanism and appreciate decarbonization there is never going to be a straight line. I wonder if you could just give us some more color on what's the change in target going to imply there? And then if the safeguard costs also factor into FSSP, please?
Greg Barnes: Yes. So with the safeguard mechanism in place, you've essentially got a functioning market mechanism that drives our approach and incentivizes an approach, if you like, around decarbonization I think to have something that then overlays that becomes problematic. So that's really what underlies that change. We see opportunities to decarbonize operations there around the edges. At the end of the day, it is about reliable and efficient operations that are the biggest contributor when you're looking to limit your intensity, which is a per unit of production measure. And then ultimately, when we're doing things like assessing carrying values and what have you, we are linking our -- the life of the asset to our commitments for 2040. There's probably not a lot to say beyond that. But with safeguard in place, I think that's a natural point. Maybe 2 small builds. We do have a trade exposed relief for the refinery for the next 3 years -- he says looking afraid that it's 3 years -- which reduces the safeguard-related costs. And given their intention, the appropriate offsets are things we would contemplate in the equation when assessing decarbonization opportunities versus the purchase of offsets that makes sense to take a rational economic view and approach to that.
Matthew Halliday: I think from an FSSP point of view, we talk about Phase 1 needing to acknowledge in our view, at least higher costs. This is one of those higher costs. And so we would expect it's part of that consideration set, and certainly, as we move into Phase 2 equally. I think in terms of the targets and the difference, it's just simplifying to move to the safeguard mechanism. It doesn't otherwise trigger any material change.
Operator: Our next question comes from Mark Wiseman at Macquarie.
Mark Wiseman: A couple of questions. Firstly, on the ultra-low sulfur gasoline project at the refinery. Are you in a position to talk about what the total CapEx of that project has been end-to-end? It seems like it's gone quite a bit over budget. And with the market focusing on your capital intensity, whilst that's a true compliance CapEx cost that you've incurred and should be taken into account with any government initiatives, it is sort of one-off in nature when we think about the capital intensity moving forward, it would be good to be able to strip that out.
Matthew Halliday: Yes. I think we haven't called out the cost of the investment specifically. It has escalated certainly above where we thought CapEx was going to be originally when we approved the project. I think the key point Greg made earlier is we expect CapEx for this business to move back to somewhere around $450 million. This year, we've got the FCC turnaround at Lytton, and we've got just the tail end of that upgrade spend. But I think the key piece is when you look through the higher CapEx as over the last couple of years, we've been in the heat of our turnaround cycle. And we've had the one-off project with low sulfur fuels. We then get back to a number of around $450 million on a normalized basis.
Mark Wiseman: Second question, just on convenience retail. I mean thinking about that 5% CAGR in earnings since 2020, congratulations, it's a great achievement. I mean, back then, our forecast for this year was $320 million, and you're printing $374 million. It's definitely been better than the market expected back then. I guess, looking forward over the next 5 years, you've got EG Group coming into the portfolio, which is a big investment, but we're facing difficult tobacco and fuel volume declines and more competition at the bottom end. Do you have any comments on how to think about that 5% CAGR on a forward basis from now to 2030?
Matthew Halliday: Look, I think from our point of view, and Kate gave some color earlier, and I might ask her to comment or to build on my comments. But when we look at the underlying consistency of delivery in the business in terms of the right offer for the right local market, the -- at the lower end, the results of U-GO. At the upper end, we're seeing some really encouraging results from the premium segmentation and our highways. And when we look at our pipeline of activities that the team has -- we're really encouraged by that sort of performance, not being simply the turnaround of the business over the last 5 years, but a really strong platform from which to do something similar going forward, setting aside EG, where we've been clear on sort of the metrics we anticipate there. So we're really encouraged when we look at our plans that we can continue to see strong growth in this business over the next 5 years. Kate, do you want to build on that?
Kate Thomson: Yes, sure. So we have a strong and stable team that's demonstrated that we've got the ability to grow with discipline. We're really pleased with the results we're seeing across the whole segmentation strategy. So as an example, across our premium segments, we're seeing double-digit growth in things like coffee, bakery, chilled perishables, healthy snacking. Our QSR business continues to grow, albeit that we're very disciplined with how we're selecting sites and making sure that we're ready to grow before taking next steps. But our M4 sites, add an additional 6 QSRs to our network just across those sites last year. We've got a pipeline for 40 further sites to be upgraded across our segmentation strategy this year, and we're confident we've got plans to grow beyond that.
Matthew Halliday: I think the only other thing I would say touching on your higher competitive intensity comment at the lower end is that I think the execution strength and the strength of the team and the focus on productivity is an important part of the strength of our performance in addition to the comments that we're making in terms of the offer and the sites because the rest of the market, we would observe is feeling cost pressure. And I think Kate and the team are doing an excellent job at focusing on productivity and keeping costs under control. In nominal terms, our convenience retail costs were up just over 0.5 percentage point in 2025. I think that's great going.
Operator: Our next question today comes from Bryan Raymond at JPMorgan.
Bryan Raymond: My first question is just on the shop gross margin reaching 40%. Obviously, there's a bit of a tobacco tailwind in that. But on my math, it looks like there was some healthy underlying gross margin expansion sort of I'm estimating 50 to 100 basis points, I'm not sure if that's about right, in FY '25. I'd just like to understand the drivers of that a bit better and the sustainability, or if there's more to come from a gross margin perspective ex-tobacco, please.
Matthew Halliday: Yes, that's about right. And you can see we talked about the average basket value growth on the bottom right-hand side of Page 11 shows you the strength in basket, which is at least partially margin related on the categories that Kate referenced earlier. But Kate, do you want to build on that?
Kate Thomson: Yes, sure. So it's roughly 50% through mix, which is tobacco [ decline ], but also performance shifting to higher volume -- higher margin, sorry, categories such as beverages. And we're also seeing improvements in margin driven by our QSR business, which given we've got such high-performing highway sites is material across the portfolio. We're also seeing rate improvements across categories such as hot kitchens where that's through negotiation. And we have further improvements that we expect will come across some of the categories I've mentioned into this year.
Bryan Raymond: Just as a follow-up there, was the Metcash contract into the full year as well because I think that was a bit of -- I think you've called that out in the past as a bit of a positive in terms of margin availability.
Kate Thomson: Commencing April '25. So we haven't got the full year benefit through yet.
Bryan Raymond: Right. And that's still all on track and continuing to -- is that a tailwind as well for gross margin? Or is that not as meaningful?
Kate Thomson: The contract is meaningful. It's certainly not our only contracts that we have running through the business. We have others that we have the ability to negotiate as well, but all on track, fully implemented, and we should see the full year run rate this year.
Bryan Raymond: Just my second one, just around the U-GO uplifts you're seeing up from $300,000 previously to $350,000 and how that plays out from the EG acquisition given 1/4 of the sites are planned to be converted there. Given that meaningful kind of uplift that you're seeing, should that translate into higher synergies, higher accretion when you get to the EG conversions as well? Or is there something else that we need to be considering? And also, what have you factored into the synergies in terms of uplift? Would it be -- would it have been consistent with $300,000 that you called out previously?
Matthew Halliday: Yes. So it would have been just consistent with those base numbers that we quoted previously. I think what I would say is the [ 65 to 80 ]. But as I commented, actually, we see a lot of potential when we benchmark the performance of Kate's network against comparable sites. We see a fair bit of potential out of that business. So U-GO and doing more on U-GO offers us great flexibility. But it's not the only lever we can pull. And we see there's -- it is great to have that flexibility, but there is also a lot of value we see that we can extract out of the store on a number of those stores if we look at comp performance against our own network. So flexibility there. We're not going to change our numbers on synergy expectations at this stage, but it is a really important point to reinforce.
Operator: Our next question today comes from Gordon Ramsay with RBC Capital Markets.
Gordon Ramsay: Great results today. Now I got a question about the EG Phase 2 clearance assessment with the ACCC. And I know on Slide 23, you're highlighting that it's a would decision versus a could decision in Phase 1. The feedback I've picked up is that the ACCC is mentioning the divestment of potentially 115 sites, and you went into this transaction looking at divesting 19 sites. I just want to know how you're going to get closer to that 19 site number in the second phase of the assessment. Can you comment on that, please?
Greg Barnes: Yes. So look, there is some basic parameters around concentration in terms of the number of branded banners in local market and overall concentration that go into the original sort of formula. When you're -- in terms of isolating the number of potential sites and then you've got to go a bit deeper in terms of looking at what's happening market by market to make a true competitive assessment, what are the geographic boundaries, et cetera. When you're in the first phase, what is evident -- remember, the commission is -- we're one of the first transactions in this new regime. What's evident is it was a relatively conservative approach, and hence we've used the language under the regulations around whether it could likely substantially lessen competition. They're taking a broader threshold than what would be past practice and would have supported past decision-making. As you move into Phase 2, the sort of 3 competitors or less and 40% is typically the benchmarks that are provided or applied in a local geographic market and then you look at some of these other unique conditions as it relates to those markets. So we're not going to speculate on sites. We are confident in our view, and our view is that we will end up with a result that is closer to our original estimate than the sort of numbers you just telegraphed then and were perhaps mentioned by the commission previously. So that's just part of the process. We had always estimated a completion in Q2 of this year and the timing of this Phase 2 review is consistent with that. So we're not surprised that a transaction of this complexity has gone to Phase 2, and we continue to work constructively with the commission.
Gordon Ramsay: Second question relates around net operating cash flow. The market and ourselves were expecting a much higher number. I know that's a working capital issue there as well. But I think you mentioned MSO inventory loss contributing to it. Were there other factors that make up the difference between where the market was, let's say, like $1.1 billion versus kind of $795 million reported?
Greg Barnes: I think if we're talking -- you must be quoting that number off our operating cash movement. The 2 drivers in there that would be a difference from reported EBITDA movements in working capital, cash payments of significant items and then lease payments because obviously, our EBITDA is on a post-AASB16 or apply the lease standard. So lease payments don't wash through EBITDA. When we report operating cash, we have to subtract those lease payments. I think if you take those 3 data points, you'll get very, very close to the number that's in that bar chart on our cash flow slide. Our cash generation generally is very good and really between the restructures we've talked about and what's pending in terms of completion of the low sulfur fuels project, you will see our cash flow return quite quickly.
Operator: Our next question comes from Scott Ryall at Rimor Equity Research.
Scott Ryall: Matt, probably for you. The first question is around Lytton. When you're talking with government -- and I understand there's a lot of detail to come, but when you're talking with government, is there much focus on looking back at the 5 years since the FSSP was introduced and the fact that there was a big spike in '22 and through the cycle, it's looked okay? Or is it more the fact that going forward, there's been a change -- structural change in costs as you've referred to? I guess as part of that, does the decision on the FSSP impact at all on your assessment of low carbon liquid fuels as you've indicated is a potential, and we all know what you're doing in that space as well. Does that come into the discussions?
Matthew Halliday: So look, I think, Scott, there is an acknowledgment in terms of the structural cost increases that we've seen at Lytton and in refining. And I would say that's right at the crux of the review that's underway and that we expect will be completed in Q1. We then get into Phase 2, which is a broader review around kind of where is the industry heading in Australia, what do we see happening to costs and what do we see as necessary settings to enable the ongoing investment in the refinery. From our point of view, lower carbon liquid fuels is a separate topic, and there's a significant amount of policy work that is going to be required to get returns to a level that would be appropriate and enable further investment. So they are largely unrelated. Obviously, you need to -- it certainly helps to have an operating refinery and capability if the country is to move down a path of producing domestically lower carbon liquid fuels in the future, acknowledging that's some time away.
Scott Ryall: Okay. But as you stand at the moment, when you look forward, the -- basically the returns -- this is just for the FSSP -- the returns at Lytton are not sufficient to justify ongoing the medium- to long-term operations as is. Is that a fair enough comment?
Matthew Halliday: I think the intent is to -- when margins are low, so during a quarter when margins are low, we need the support to kick in. That hasn't consistently been the case. And the main reason that hasn't been the case is because costs have escalated significantly, and I think that's acknowledged. So I think that concludes the call. Thank you for your attention. I think it's a really strong result that is broad-based and right across the business, and look forward to engaging with you over the coming days to discuss it in more detail. Thank you.
Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.