Thank you for standing by, and welcome to the Ampol Limited 2024 half year results briefing. All participants are in a 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 Matt Halliday, Managing Director and CEO. Please go ahead.
Thank you, and good morning, everyone. My name is Matt Halliday. I'm the Managing Director and CEO of Ampol Limited. Welcome to our 2024 half year results call. I'm joined by our CFO, Greg Barnes, who will discuss the financial results in more detail, and following the presentation, we'll take your questions. Also joining us on the call today are Brent Merrick, Andrew Brewer, Kate Thompson, Lindis Jones, and Michelle Bardy, who has taken over as the EGM for infrastructure. During the presentation, we'll be referring to the documents lodged with the ASX and NZX this morning. Now, I'll start with our safety performance on Slide 3. As you know, personal safety remains a key focus for all of us at Ampol, and I'm pleased to report that we are either at or close to our best ever performance levels in all parts of the business.
We must remain vigilant and ensure everyone goes home safely at the end of their day's work. Our annual safety improvement plans are effective in strengthening our key controls and driving continuous improvement in performance. When it comes to process safety, our extended run of no Tier One process incidents since October 2018 came to an end this half with one process safety incident at Kurnell. We completed a thorough investigation of the incident and are renewing our focus on process safety. Turning to the performance highlights now on Slide 4. Looking at our financials first, ARCOP EBITDA was AUD 737 million, and ARCOP EBIT was AUD 502 million.
In difficult trading conditions, we maintained our focus on the things that we can control, with the result underpinned by strong performances by the retail and commercial businesses in both Australia and New Zealand. The cyclical commodity link parts of the business, Lytton and F&I International, had lower earnings. Statutory NPAT was AUD 235 million, almost 3x times the result in the first half of 2023, primarily due to a significant reduction in inventory losses as crude and product prices stabilized through the half. Total fuel sales were 13.25 billion liters. Leverage was 1.9x on a last 12 months basis, and net borrowings, which excludes leases, were approximately AUD 2.6 billion, which Greg will speak more about in a moment.
As a result, the board declared an ordinary interim dividend of AUD 0.60 per share, representing a payout ratio of 61% of ARCOP NPAT, excluding significant items. This is in the middle of our payout range. The interim dividend declared releases a further AUD 61 million of franking credits as we continue to meet our commitment to shareholders to release available franking credits in the most efficient manner. Turning now to our strategic priorities. The resilient performance of the business reflects the ongoing delivery of our strategic objectives. This includes continuing to build out our retail capabilities that provide strong foundations for further growth.
The key achievements this half include investment in asset reliability and capability at Lytton, with the declaration of FID for the Lytton Ultra Low Sulphur Fuels Project, continuation of the strategy to invest in premium retail sites in Australia and in New Zealand, and the development of the on- the- go EV charging networks in both Australia and in New Zealand. Turning now to Slide 5. ARCOP EBITDA was AUD 737 million and was down just 7.7% compared to the first half of 2023. ARCOP EBIT was AUD 502 million, a strong first half result, beaten only by the first halves in 2022 and 2023, when Ampol was the net beneficiary of the volatility in markets created by geopolitical tensions.
Pleasingly, this result demonstrates a much stronger composition of earnings, with growth in retail fuel and convenience and strong performances from the commercial businesses in Australia and New Zealand. Total sales volumes were 13.25 billion liters, down half on half, due largely to a well-supplied and less volatile market, reducing spot sale opportunities in F&I International. I'll now hand over to Greg to take you through the details of the group and segment performance.
Great, thanks, everyone. Thank you, Matt, and good morning, all. Just to go on to Slide 7, you can see the detail behind our total fuel sales volumes. Group volumes were 13.25 billion liters for the half. This is down 6.5% year-on-year. However, the shortfall is largely due to reduced spot or discretionary sales in our International business. That's a business where volumes are gonna move around from period to period, but where earnings are expected to grow over time. I'm gonna talk more to that in more detail when we get to that section of the presentation. Australian wholesale volumes grew by 1%, with growth across petrol and diesel, reflecting gains in commercial channels that more than offset some softness in the retail channels.
Our Convenience Retail business, we saw fuel sales reduced by 4.8% at the headline level, but as you'll see, that's largely due to reductions in base grade petrol volumes, so less impactful on margins. Taking both of these markets into account, the combined Australian volume was broadly in line with the prior year. Volumes for Z Energy were down 3.8% on a like-for-like basis, once you adjust for the impact of exiting from bitumen and avgas sales in the second half of last year as part of Z's simplification process. So on Slide 8, we can look at the group's pro forma financial performance. Ampol delivered EBITDA of AUD 736.5 million during the period, and ARCOP EBIT of AUD 502 million.
While down year-on-year, the overall result reinforces the strength of our integrated business model. In particular, it highlights the consistent improvement in Australian Convenience Retail, as well as the relative strength of the Z business and the value that Ampol has brought to it since acquisition. These performances, combined with another solid result in F&I Australia, helped to counter weaker refining and International environments. We reported an ARCOP NPAT of AUD 234 million and a statutory NPAT of AUD 235 million. The statutory results include AUD 21 million of inventory losses after tax, reflecting the adjustment to bring cost of sales to their historic cost for statutory accounting purposes, in a period where refined product prices trended slightly down over the period.
This was offset by favorable significant items, the bulk of which relates to unrealized mark-to-market movements on derivatives and upfront investment in the introduction and integration of software as a service technology within the business. Okay, Slide 9 shows the key movements in group EBITDA and EBIT. I think, as I said earlier, I think what's really pleasing about the result is how well our Convenience Retail and New Zealand businesses are performing. Each of the teams have done a terrific job operating in markets where households are under increased financial pressure. In my view, the result reflects a combination of two overarching factors: One, Ampol and Z have successfully adapted their offer in response to these conditions, and importantly, I think the general resilience of this sector and the nature of the products we sell is on display.
As you can see, we've continued to invest in energy solutions, and that's at a rate that's consistent with the second half of last year, which was the guidance we provided at year end. We invested in a measured and targeted way, primarily focused on e-mobility, particularly out-of-home charging, which has clearly emerged as the decarbonization solution for light commercial and passenger vehicles. For the foreseeable future, we see renewable fuels as a logical solution for aviation, as well as for long-haul and heavy road transport in most use cases. And you may have seen that we recently entered the next phase of project feasibility with IFM and GrainCorp to assess the merits of a locally refined solution in Australia. And Matt's going to update on that to some extent, and the progress the team are making later in the presentation.
So we start to look at each of the businesses. Slide 10 looks at the F&I result in more detail. The Lytton result reflected lower production, largely from the steam outage and the alkylation unit catalyst supply disruption that occurred in the first quarter when Red Sea events unfolded. Lytton refiner margins averaged $10.27 per barrel for the half, and that's broadly in line with the first half last year and up slightly on an Australian cents per liter basis due to the lower exchange rate, and I'm gonna pick up the rest of F&I on the next slide, which is Slide 11. On Slide 11, we sort of step through some of the key components of the balance of F&I. In Australia, we increased wholesale volumes, largely from petrol and diesel, and a more favorable buy/sell balance.
As I mentioned earlier, the F&I result was broadly in line with the same time last year, with growth in commercial segments and margin improvements helping to counter a softer performance from third-party retail channels. F&I International earnings made a positive contribution in the half, despite a very difficult second quarter. While in 2023, we were the net beneficiary of volatility, this year, the more stable market, particularly in the second quarter, reduced the opportunity for discretionary sales activities, including spot third-party supply. As we're, as I've mentioned before, despite quarter-to-quarter variability, this part of our business consumes little capital, has grown consistently over time, and is expected to continue to do so on average, in the years ahead. Slide 12 looks at our KPIs for our Convenience Retail business.
I think it'd be fair to say the economy in the first half of 2024 looks very different to the economy of 12 months ago. And with that backdrop, we're really pleased to have delivered another half of year-on-year earnings growth. Ultimately, the 5% earnings growth boils down to a couple of key drivers. I think firstly, the quality of our network, having spent several years addressing an underperforming tail and repositioning under the Ampol brand. And secondly, the consistent improvement in our in-store execution. And that's playing out in the stats that you can see on this slide. While total retail fuel volumes were down 4.8%, this was largely from a reduction in base grade petrol volumes.
Premium fuel sales penetration increased by 1.6 percentage points to, sorry, 54.8%, helping grow fuel contribution year-on-year. The good progress in shop performance continued, with shop sales ex tobacco up 2.1%. Tobacco sales fell by around 15% during the period, as the demand for these products and their substitutes continued to move into illicit markets. Combating this has been a strong in-store performance, and you can see the combination of these two dynamics playing out in our average basket value and gross margin percentage. To hold basket value to within seven cents of where we were last year, was a function of unit growth as well as effective price and promotion management.
Similarly, tobacco was one of our more expensively priced but lower margin products, so its decline, combined with the drivers of basket value that I just mentioned, led to store margins growing by 1.1 percentage points year-on-year. So Slide 13 just shows really the consistency of the team's delivery since the transformation of the retail operations began in 2019. Earnings from the first half have more than doubled since 2019, to a point where we're probably the most profitable owned and operated petrol and convenience network in the country. The other aspect of the transformation has been the reduction in reliance on tobacco, which now represents approximately one quarter of our total shop sales, and a significantly smaller percentage or fraction of the total shop gross profit in dollar terms.
We're really pleased with the progress and quality of the network and capability we now have in the organization, and this sets us up to take the next steps. Be it selectively grow our premium store footprint, increase food service offerings, including QSRs on our network, where it makes sense, and exploring a more segmented and localized approach to our markets. Slide 14, you can see the contribution to the improvement in the Convenience Retail earnings. Earnings growth year-on-year was driven by gains in fuel. Our continued focus on site profitability over volume meant we lost a bit of share in base grade, as I mentioned, but improved our premium fuel mix, which led to higher contribution from fuel overall year-on-year.
As I mentioned, the strong shop performance continued with the shop broadly in line with the same time last year, despite the declines in tobacco and a more cost-conscious consumer. Depreciation and amortization was slightly higher on the half year-on-year, as the investment in the network, particularly our key highway sites, played through. We might turn to New Zealand as a segment on Slide 15. This segment includes the contribution from Z Energy and the trading and shipping contribution into this market. ARCOP EBIT from the New Zealand segment was AUD 127.6 million, slightly ahead of last year. I think it'd be fair to say, the New Zealand consumer is doing it particularly tough at the moment. All in all, we're pleased to see earnings at these levels.
The next couple of slides will shed more light on the drivers of this performance. Slide 16 shows the trend in Z Energy's key retail metrics for the first half over the past six years, including the time before Ampol acquired Z. It's a pretty encouraging set of stats. Z's store refresh strategy is working, and it is a contributor to holding shop revenue and to holding gross margin. Average basket value on the bottom right of the table, or of the slide, peaked during the height of COVID, but has been pretty consistent over time. Z, like the Australian retail business, has focused on higher margin, on-the-go categories, and in New Zealand, categories such as coffee have grown through a combination of a barista offer and in-app sales. In a market that's particularly sensitive to fuel prices, it is unsurprising we saw some decline in volumes.
This was particularly the case in Caltex, where we have some work to do on its position in an increasingly segmented market. The inverse was the case with our Foodstuffs channel, a largely unmanned offer, which continues to grow with a very clear customer proposition. In Slide 17, you can see a waterfall for the New Zealand segment, which is inclusive of supply benefits from our trading business. It's presented in New Zealand dollars to take account of currency translation. The movements are consistent with my earlier comments. Fuel margins grew overall and are inclusive of a full half of supply from Ampol's trading and shipping business, with growth in wholesale channels also benefiting margins. The store benefits we spoke of are evident in the non-fuel income movement.
As part of the business simplification initiative, the Z team exited peripheral businesses such as specialty products, bitumen and avgas. The net benefit of this, and the associated overhead savings, are included on the chart as well. The other thing to just call out is the increase in D&A, or depreciation and amortization, which is related to the PPA, or purchase price accounting, adjustments in 2023, with the underlying Z depreciation and amortization broadly in line with the amount incurred in the first half of 2024, and that's a good steer for the future. Okay, we might turn to our balance sheet and cash flow on Slide 18.
We exited the half with net borrowings of just under AUD 2.6 billion, and this was inclusive of the payment of AUD 1.20 per share final ordinary dividend for 2023, and the AUD 0.60 per share special dividend paid at the same time. Half year operating cash flows were AUD 474 million, noting that operating cash presented here are net of lease payments and the outflows associated with a full year of 2023 incentives. Tax installments were AUD 100 million, and net capital expenditure was approximately AUD 185 million.
We expect CapEx to lift in the second half, largely due to the progress on the ultra-low sulfur fuels project, the turnaround at Lytton in Q3, the continued progress on our highway sites, particularly the M4, as well as the continued rollout of our EV chargers. We expect net CapEx of approximately AUD 600 million for the full year, but as always, this is subject to timing and the pace at which these initiatives can be practically progressed. Payment on the interim ordinary dividend declared today will fall into second half cash flows. And then finally, from me, to just round out quickly on capital management. As we've said before, we continue to focus on getting the balance right between delivering today, rewarding our shareholders, and investing in the future in a measured way over time.
As Matt said earlier, we declared an interim dividend of AUD 0.60 per share, fully franked, which is in line with the middle of our payout range. We exited the period with net debt of AUD 2.6 billion and leverage of 1.9x EBITDA, noting that leverage is on a 12-month look back basis and therefore includes a particularly strong second half 2023 result. We continue to target leverage sustainably towards the bottom end of our 2x-2.5x EBITDA range over time. So with that, thanks for listening. I'll hand back to Matt and come back for questions at the end of the presentation. Thank you.
Great. Thanks very much, Greg. So we'll now move on to Slide 21, and before we close the presentation, I'd like to provide an update on our strategic objectives and how they position Ampol to deliver ongoing strong financial performance. At our 2020 Investor Day, we unveiled a new purpose and strategy designed to build a more resilient business, to deliver growth in the medium term, and to evolve the business for the longer term. That strategy revolves around three pillars: firstly, enhancing the core business, then expanding our fuels and convenience platform, and evolving the offer for our customers as their needs change. As part of the decision to continue domestic refining, we made a commitment to upgrade the refinery to produce 10 PPM sulfur in gasoline. As Australia moves to this fuel specification, it will encourage the import of more fuel-efficient vehicles from Europe.
During the half, we declared FID on the low sulfur fuels project and expect to realize improved gasoline cracks for this product. We are also investing in asset reliability with the reformer T& I now close to completion. We expect to restart the refinery soon and to reach stable operations by the end of this month. The capital required for the project and the T& I are included in the guidance provided today. While International earnings came under pressure in the second quarter and earnings from the U.S. operations in particular were lower, we remain optimistic about the opportunity to establish a small European trading office in 2025 as part of our plans to continue to grow International earnings. We have a clear strategy to grow our Australian retail footprint and offer.
This is with an initial focus on highway sites and upgrades to premium sites. We have completed the upgrade to the New South Wales M1 sites, including the Ampol operated Hungry Jack's, as well as Noodle Box and Boost Juice outlets as part of our food service and QSR strategy. And we will continue to increase the segmentation of our offer to meet the needs of customers in their local market environment. Z has focused on delivering its Convenience Retail growth targets and is continuing to deliver greater segmentation of its offer between the premium Z brand and the lower cost Caltex offering. During the half, Z completed six retail site refreshes as they continue to progress their planned format upgrades. And then, as we look to the future, we are evolving the business to support our customers through the energy transition.
As I mentioned earlier, the On the Go public fast charging network rollouts are progressing in both Australia and New Zealand, and we will adjust the pace of our rollout according to the uptake trends we see for EVs. The progress of the EV fast charging network development is slower than we expected, given the difficulties in connecting to the grid in Australia, in particular. We have a pipeline of approximately 100 bays, either awaiting grid connection or under construction in Australia and New Zealand, and this provides some window into the challenges of delivering the enabling infrastructure to support the transition.
We are also exploring solutions for heavy transport with a focus on renewable fuels in terms of both import supply chains and the potential for production of SAF and renewable diesel at Lytton, which has moved into the pre-FID phase. On Slide 22, we've provided data on the EV penetration through to the end of June 2024. You can see that the growth in EV adoption in Australia has slowed modestly in the first half, with the rate of uptake essentially stabilizing. EVs remain a very small proportion of the total fleet, and as our scenario analysis presented in the climate report showed, we expect fuel demand to be robust well into the 2030s .
It is important to note that in the half, just over 70% of our total Australian fuel volumes were jet or diesel, where the bulk of demand is for heavy transport, and it is fair to say that transition options look to be pushing out as the complexity and cost of this challenge becomes clearer. The right-hand side shows some key statistics for our public, fast, and ultra-fast charging networks. Noting it's early days, but the stats are encouraging, both in average charge time and also duration. You can see that dwell time is circa 25 minutes- 30 minutes, even for fast chargers, and we continue to work on the convenience offering to benefit from the opportunity that this presents. We are starting from a strong position with our significant retail footprint and strong B2B and SME customer relationships.
We believe it is these customers with fleets who will be among the early movers, and we are well-placed to provide integrated solutions to their transport energy needs as they evolve, and as noted earlier, we believe this helps to, in turn, reinforce our strength in fuel. I'll now talk to our key priorities for the rest of 2024 on Slide 23. We will continue to progress the low sulfur project, with completion expected around the middle of 2025 . We have a clear strategy to grow our Australian footprint and offer. This is with an initial focus on highway sites and our premium site upgrades, and we continue to increase the segmentation of our offer to meet the needs of our customers in their local environment.
Our food service and QSR strategy and capability continues to build, and during 2024, we will aim to add and operate more stores, including Hungry Jack's and other brands. Z will continue to focus on delivering its Convenience Retail growth targets and continuing the segmentation of its offer between the premium Z brand and the lower-cost Caltex offer. During 2024, Z plans further capital light site upgrades and to grow retail shop sales to NZD 500 million by 2025. And we will continue to push our organic growth strategy in F&I International, building on the capabilities we have developed. The progress of the EV fast charging network development will also continue over the next couple of years, with investment to be paced according to vehicle uptake rates.
And we will explore solutions for the hard-to-abate transport sectors, with a focus on renewable fuels in terms of both import supply chains and potential for the production of SAF and renewable diesel up at Lytton. This will, of course, require clear policy support from government if returns that are adequate are to be delivered. I'd like to close today with a view of the current trading conditions and macro outlook. The graph on the left-hand side of Slide 25 shows the historical and forecast position from Facts Global Energy for the global refining outlook, showing refinery supply adjusted to reflect expected utilization, utilization rates, and their view of demand. Refinery additions have typically been slower to arrive than forecast due to project delays and reliability issues during ramp-up, with some additions in the second half of this year.
However, energy demand growth continues, with the introduction of low-carbon alternatives relatively limited in the medium term. The key takeaway is that production capacity relative to demand is expected to remain tight, with lower refiner margins, at least relative to the last couple of years, expected in 2024 and 2025 before improving. Chinese demand and export intentions will continue to be an important watch point as they balance domestic refining capacity with smaller refinery closures as new capacity comes on stream. Turning now to the current trading environment and outlook on Slide 26. LRM for the third quarter will be impacted by the production mix during the reformer T&I, and total production will also be lower than normal by about 300 million liters.
This takes expected total refinery production for the year to about 5.5 billion liters, with the fourth quarter expected to benefit from improved performance following the T&I. Of course, it's difficult to predict where cracks will settle, but since June, the global refining system has had a period of high reliability, performing well above the levels seen during 2023. This has kept the market well-supplied during the Northern Hemisphere summer and has been a key factor in the lower product cracks. Looking ahead, we see planned production rates continuing to largely meet forward demand. Of course, this depends on the continuing good reliability we have seen recently, and China's plans for exports, given domestic demand softness, also remain a watch point. F&I Australia is expected to have continued strong fuel sales at an annual rate of over 15 billion liters, underpinned by very strong diesel demand.
Currently, the more stable pricing environment experienced in the first half continues to prevail and is likely to continue to affect the opportunities for spot sales for F&I International. Both Convenience Retail and Z Energy continued to see similar trends from the first half, with the consumer continuing to be under pressure and declining tobacco sales. And to complete my comments on outlook, after declaring FID on the low sulfur project, we expect total group CapEx to be skewed to the second half and to be AUD 600 million, including the project, the T&I, and the benefit of government grants. We're now on Slide 27, and I'd like to close out with the key reasons we believe you should invest in Ampol.
We have built a more resilient business over the last few years by growing and improving the quality of our earnings mix, and Refining and F&I earnings have, in the main, improved looking through short-term volatility. We own and operate an integrated fuels value chain, including a uniquely positioned refinery with a favorable outlook and with an ability to invest with confidence, given the returns are underpinned by the fuel security payment program. Based on our scenario modeling presented in our 2023 climate report, the outlook for fuel demand is expected to be robust well into the 2030 s, and we have flexibility to respond to the pace of transition as it evolves and as returns become clearer. The board and management are focused on delivering for our customers, communities, and our shareholders.
The TSR between 2021 and 2023 was pleasing at more than 38%, and shareholder returns have been over AUD 2 billion since 2021, all with the distribution of franking credits. We'll continue to focus on getting the balance right between positioning the business to deliver strong returns through growth in the short and the long term, while at the same time delivering strong dividends. That ends our presentation. Now, Greg and I will take your questions, and we also have Brent, Andrew, Kate, Lindis, and Michelle on the line, and I may direct questions through to them. With that, can we please take our first question?
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you're on a speakerphone, please pick up the handset to ask your question. We ask that questions be limited to two per person. Please rejoin the question queue for any additional questions. The first question today comes from Michael Simotas from Jefferies. Please go ahead.
Good morning. First one from me on Convenience Retail. Well done on a very good result in a tough environment. Your average shop sales per store, ex tobacco, have grown. Can you just give us some color on whether your like-for-like sales, ex tobacco, across the network have actually grown? And related to that, the contribution or some update on how the major QSR conversions are performing and how much more of that you think you can do across the network?
Yeah, I might pass that one through to Kate. Thanks, Michael.
Hi, Michael. Thanks for the question. Like for like, we're broadly almost flat, excluding tobacco. In terms of QSR, we believe they're performing well to business case. It's been a little soft for the start of this year from a sales perspective. We believe that's broad across the QSR market. We'll continue to deliver some further sites in the back half of 2024 to improve our confidence in the rollout into 2025. We've got a number of sites targeted with Hungry Jack's and some other QSR brands as well, including the M4s, which we currently have under construction. And we expect that we'll continue to diversify our QSR portfolio across other brands that fit in smaller formats than the traditional QSR model.
Okay. Thank you. And then the second question around capital management. Acknowledge the payout is in the middle of the range for the interim, but it is lower than it has been. Has there been any change in thinking around capital management, or is this just simply once you cycle out of the very strong first half, it does actually take your leverage within the bottom end of the target range?
Yeah. Oh, it's Greg, Michael. Thanks for the question. I wouldn't read too much into it. I think, you know, with the interim dividend, and the results we've just delivered, we felt best appropriate to go down the middle of the range, down the fairway, if you like. We're coming into a period where we are, as I flagged, gonna be investing a little bit more in capital expenditure, particularly linked to things like the ultra-low sulfur fuels project. We're mindful of that, but we're being very clear and consistent with our approach to capital management and capital allocation, and we'll just make an assessment at year-end.
Okay, great. Thank you.
Thank you. The next question comes from Tom Allen, from UBS. Please go ahead.
Hi, good morning, Matt, Greg, and the broader team. Just following up on your last comments there, Greg, just on the CapEx, obviously no surprises on CapEx reconfirmed around the AUD 600 million mark for 2024, but how should we think about it into 2025? Should we expect a material reduction just given the ultra low sulfur fuels project expected to be complete mid-2025? And then also, could you please provide some color on Ampol's investments in the highway sites, just now that some have been completed, it'd be great to hear what kinds of incremental revenues you're seeing coming through?
Yeah. Okay, look, I'll take the first part of the question, at least. So look, CapEx, I would say for 2025, you know, we'll provide a bigger update at in February 2025 on the back of year-end results, because it is in part linked to just how quickly you can deploy or otherwise in what are pretty tight labor markets. So some of these projects invariably are taking a bit longer than we would think, particularly on things like the low sulfur fuels project and highway sites where there are heavy construction. So, but my guide at this point would be to expect similar levels of CapEx in 2025, before they then return to sort of more normal levels, which are back in that sort of 400-450 range over time.
There's two things driving that beyond sort of a continuation around, you know, the rollout of our first phase of our EV charging network and the continued focus on highway sites. So two things that really underpin that will be the continuation of the low sulfur fuels project, which really does start to ramp up in the second half of the year and then into next. So the timing of that second half in and into next year will be influential, and of course, we're in a T&I next year as well around the FCC, which is a more significant T&I than the one we're currently in.
And they're probably the two things that just underpin CapEx, sort of hovering at around these levels for 2025, and then I'd expect it to sort of return to the levels I mentioned in that 400- 450 range, from 2026 going forward. Your second question was on highway sites.
Yeah, so in terms of the highway sites, Tom, look, they're performing really strongly, both Pheasants Nest, which was a new build, of course, and then the M1s. Look, these sites, in terms of the returns we expect, you know, comfortably deliver returns in excess of 15%. They are highly attractive, and the performance we've seen out of them is circa 10x an average site. Very strong on volume, very strong performance on margin, and increasingly we're seeing really strong food offer performance, complemented by the QSRs that we're increasingly operating on those sites. So, we're pretty encouraged and to have the M4s coming into the pipeline once we finish construction of those, will complement our suite of very, very large New South Wales highway sites.
Thanks, Matt. And just following up that last comment, anything you can add on how you're seeing competitive dynamics changing in Convenience Retail markets?
Well, look, I think we continue to see, you know, relatively normal competitive dynamic that has been in place for a while in Convenience Retail markets. And, you know, I think, you know, when you look at how we've performed, we're pretty comfortable with how we're competing, and that underpins that execution in a stable market, if you like, is consistent with, you know, 5% earnings growth that we've seen out of Convenience Retail in the half, which I think is a strong result.
Thanks, Matt and Greg. Appreciate that.
Thank you. The next question comes from Dale Koenders from Barrenjoey. Please go ahead.
Morning, Matt and team. Could you maybe talk through a little bit how you're thinking about margin impact in the second quarter with the refining outage relative to regional indexes or LRM, or what sort of impact is this? Is this sort of circa $2-$4 a barrel? Then, what's the higher OpEx that you need to carry through the T&I that we should be thinking about in your accounts for year-end?
I think, Dale, yeah, in terms of, obviously margins will be lower, given the impact of the T&I. It depends what you assume, of course, in terms of where cracks and crude premiums are gonna be. Cracks have softened. Equally, crude premiums have, but it's about a 300 million liter impact that flows through to give a lower LRM in the third quarter. As I said, the T&I is progressing well, which we're encouraged by, and we expect to resume stable operations with higher levels of reliability coming out of the T&I.
Okay, and then operating costs, like, if we look historically, it's been maybe AUD 20 million higher OpEx, sort of one-off with a major T&I. Is that about right?
Yeah, well, you have to, you have to carry. You know, we really capitalize the impact of the T&I. You have the operational impact, but you do have to carry your OpEx, which you can see in the appendix, through the period of the T&I without the production. So that's really the OpEx impact that you wear through that period.
Okay. And then just secondly, on the International business, can you maybe remind us, what are the right conditions for this business to return to a more normal level of earnings? Because it seems like if the markets are stable, that's bad, but if they're volatile, that's bad as well.
I think what you've seen for the F&I International business is, when we have seen, you know, geopolitical impacts and some price volatility, that's been good for that business. You know, if you look at the track record for the international part of F&I, it has benefited over the last couple of years. But, you know, we're putting a lot of steps in place around our ability to blend, price risk, manage, and deliver incremental spot sales for customers that we think, you know, we think that this is a lower period of volatility, and I think you can see other trading businesses seeing or experiencing similar results.
We expect that this business is gonna improve its performance, and you should look to take an average that incorporates the strong performance we've seen over the last couple of years. You know, you wanna see some variability and volatility because that opens up sort of some dislocation in markets and the opportunity to do the things that we do.
Okay. Thank you.
Thank you. The next question comes from Adam Martin from E&P. Please go ahead.
Yeah, morning, Matt, Greg. Just on diesel volumes in the Australian wholesale business seem to be growing quite well. In your outlook comments, you talked there as sort of further growth. Is there any sort of risk around what commodity prices are doing, or just give us some thoughts there, please?
Yeah, I think, I mean, you typically will see diesel volumes grow, you know, give or take, in line with with GDP growth, and that's what we continue to expect. No, we think that's gonna continue to be a growing part of the market and and demonstrate really strong resilience, and we're very happy with with how we're competing in that space equally. So, yeah, we see solid volumes through F&I, and diesel really underpins that.
Okay. Thank you. And just second question, could you make any comments on sort of M&A? Obviously, there's been recent media articles about EG Group, but I know in your pack, you've talked about sort of, you know, value driven around Australian Convenience Retail, but just any comments you can make there, please?
Yeah, I think we're pretty clear that, you know, we'll be interested in the consolidation of the market, where it makes sense, and we can deliver real value. We will be disciplined. I think we've got a good track record on M&A, if you take Z and our ability to identify, get the value settings right, and then execute. You know, other opportunities that we'll look at, we'll apply the same discipline to. We don't need to do M&A, but if opportunities exist, we'll look at them, but we'll be disciplined about it.
Makes sense. Thank you.
Thank you. The next question comes from David Errington from Bank of America. Please go ahead.
Morning, Matt. Morning, Greg. If I could get your attention on Slide 11, please. I'm trying to get my head around F&I, and F- which is the business that I've always been attracted to. But when I look at the numbers in F&I Australia, and if you compare that to pre-COVID, your earnings are significantly below, 10% below their first half in 2019. Now, I would have liked to think that, I don't know, maybe jet might still have a little bit more runway. But given the investment that you've been putting into F&I, I'm a little bit disappointed as to why you're below Australian F&I, why you're still below, why you're still below FY 2019. What am I missing there? Is it, is it just, "Hey, just slow down and wait because it's gonna come back," or has your business actually been going backwards, coming out of COVID?
Yeah. Thanks, David. Look, the answer on F&I Australia is actually the EG or the Woolworths contract at the time was repriced. We said at the time...
Yep
It was worth about AUD 80 million-AUD 100 million, so that flowed through from the second half of 2018 into the first half of 2019. So you need to adjust for that. If you adjust for that number, in fact, the business has grown earnings. So that really is the one factor to point out when you assess that business.
Going forward, though, the runway of growth, because, look, at the end of the day, 2024, it still went backwards on 2023. What is a reasonably reliable number that we should be thinking? Is it around that 300 now full year, or what would be-
Yeah, I think you can see two halves now that demonstrate pretty consistent performance for that business. You know, 15 billion-15.5 billion liters is consistent with what we're delivering. We're delivering good strength in diesel and some ongoing recovery in jet. And I think if you take the AUD 80 million reprice for EG and plug it through that first half of 2019, you're down at about 120, and you're seeing stable growth out of that business. The hole in the middle relates to COVID, as we all know, and we've seen good recovery in volumes, and we're seeing good stable returns out of that business.
Okay. And on the same slide, this is part of the same question: with International, I mean, I don't really understand it. I mean, I don't understand how it goes up and down. I mean, volatility is just when I hear the word volatility, it's a word that I, as an investor, just don't like. Is this something that we just have to put up with as investors? And I suppose it's a low capital employed business, so any money you make is a bonus. Is that the way we should be looking at it? Because, you know, it, it is bouncing around a bit, and I just don't like the volatility. So if you can give us a bit there as to what's going on and what we can expect, that would be appreciated.
Yeah, David, it's Greg Barnes. The I think you hit the nail on the head in terms of low capital business. So this is a business that, you know, leverages the shortage or the consistency of supply into Australia and now New Zealand to eke out sort of incremental margins on volume by taking advantage of either, you know, third-party supply opportunities or market dislocation between, say, the Americas, Asia and European markets. So that, that's where it likes volatility. It likes markets where there are dislocations, say, for example, between the US and the Asian markets, or where there's dislocations between components that go into fuel making versus the greater fuel itself, where we can blend and store and take advantage of those opportunities.
That's its value, but what, the way I sort of think about this business is it will move around a bit. I said that in my commentary, but if you look at the last three first halves on that graph, that's not a bad steer. The average of that is not a bad steer of what you should be expecting out of that business over time, and it should grow from there over time. It won't do it every quarter and every half we report it, but it should be able to do that on average over time as we add capability and build around the sort we have into these two key markets. It's been a good source of growth for us.
We manage the volatility with very tight risk management policies and systems and mechanisms in place, if you like, and I sort of think that average, which is around AUD 55.5 million, if you take those last three first halves, that's a pretty good steer of what we should expect out of that business over time.
Hey Matt, what was that, sorry, the last three halves or the first three halves? So the average is around... What's that?
If you take first half 2022, 2023 and 2024, it averages-
Yep.
About AUD 55 million across those three half-year periods. That's not a bad steer.
Yep.
And it's pretty consistent with what I've said to you previously.
Yeah
Around sort of half-yearly performance. It just won't be consistently that, but it will be over time on average.
Around that mean. Yeah. If I could just sneak in one more, because that, the fuel mix really interested me, that the...
Yeah
Base grades are down, yet your premiums are up. I mean, given the economic conditions at the moment, gosh, that's a really positive result. It flies in the face of trading down, if you like. Can you give a bit of a explanation as to whether you're doing anything different there? Because that, to me, was a really positive, that the premium's up, base grade's down in this current environment.
I think, David, it reflects the strategy that's been deployed over time, which is, we adjusted our network significantly, and that network is far more geared towards premium, high-returning sites. Where we are deploying capital in that business, most significantly, is in our highway sites, and they're very strong performers in that regard. That's what is really underpinning it. We have good capability around how we price and how we look at different micro markets. But premium fuel is, and performance is very consistent with the strategy and the network optimization that has been a lot of hard yards for the team over the last few years.
Mm-hmm. Thank you, Matt, and thank you, Greg, for your answers. Thank you.
Thank you. The next question comes from Gordon Ramsay from RBC Capital Markets. Please go ahead.
Thank you. Matt, I'm gonna continue David's line just on Slide 11. There was a comment made about softer performance from third-party channels. I'm assuming that's EG, and the rationale that I've got on that is that when people pull into an Ampol station, they'll buy premium fuels. The average purchaser that pulls into an EG one will be looking at lower octane fuels, and we've seen volumes reduced there. I'm just assuming the EG sites have given that softer performance from third-party channels. Is that correct?
Yeah. So Gordon, maybe I'll. It's Greg, maybe I'll answer that. Look, I wouldn't call out EG specifically, but they are part of that channel that we're referring to. The reality is, you know, when times are tough, that channel is gonna be slightly down. You saw that in our fuel volume. In our Convenience Retail side, it was combated by the fact that, you know, our positioning, quality, and network and so on, have led itself to a higher mix of premium fuels. You know, not all retail businesses are necessarily have the same sort of potential and capability.
So I'd say what we saw in our third-party retail channels, pretty consistent with what the industry has seen more broadly. And what's been a real highlight in that business is just the continued performance in the commercial sectors, which has been more than enough to mitigate that, as well as some good margin management in those channels as well.
Okay, and just one other question. Can you please explain why you're setting up a shipping and trading business in the EU, which is in Europe, when the Dangote Refinery is gonna make Africa, Nigeria, into a net exporter of refined product, which is going to end up in Northwest Europe, which is going to lead to a surplus of refined product in that market going forward? I just don't see where the trading opportunity is gonna come from.
Yeah, thanks, Gordon. Look, it's a small office that we would be looking to establish, so I wouldn't want to overstate it. But, we do see the shift of the fuel spec in Australia for gasoline to 10 ppm as significant. We do see that the supply points for that product are going to be scarcer than the current spec, and that means Europe will play an increased role from a supply point of view, and you know, and that time zone to take Africa into account as well. So, that's what we're looking to do. It means that we will connect, much as Singapore remains our core hub, and where the heart of our trading and shipping capability is.
A small presence in both Houston and Europe means that we connect the major trading markets. We're very well plugged in, and that means we don't miss opportunities as they arrive. But the structural answer to your question is the shift in the gasoline specification, and we want to have that office ready for that shift at the end of 2025.
Okay, thank you. Thank you. The next question comes from Scott Ryall, from Rimor Equity Research. Please go ahead.
Hi, thank you very much. I just hopefully two very quick questions, actually. Yeah, just on your Slide 22, thanks for continuing to provide some of the stats on EV-related stuff. I was wondering if you could just comment on the uptime of your equipment and whether you've seen any particular issues there or challenges that you faced. And on the utilization, looks still pretty low across all those sites. So I wonder if you can comment on that.
Mm-hmm.
And then my second one will be on the sustainable fuel stuff, so.
Yeah, I might pass that to Brent. Thanks, Scott.
Yeah, thanks, Scott. Yeah, uptime for us is a really important metric to get right going forward as EVs increase and number of sites increase. It's a critical minimum health standard we have for our equipment. We target, you know, a best-in-class sort of performance, and we're in the sort of 90%, 98%, 99% uptime. Key factors that impact. There's been a few specific chargers that have been the main driver, and that's environmental factors for that site. And the other one is making sure we've got good communications with chargers.
That seems to impact customers, which is again, geographical with known technical solutions to improve that over time. So yeah, we've got a strong team making sure we're absorbing all the data and all the insights we can to develop standards so that our sites are regarded as best-in-class for our consumers and customers as we go forward, and they think of AmpCharge before they think of anyone else.
Yeah, thanks, Brent.
And utilization-
Thanks, Brent. And in terms of utilization, Scott, so what we're seeing is around 7% across our network currently. That's actually well above what we expected to see at the moment. So, that's, I think we take some encouragement from that. I think some of the International modeling and experience, there's a 10% return on the electrons at a 10% rate of utilization, and then up to 15% when you take into account the Convenience Retail benefits, where the EV customer looks to be spending more like 30% more, if you like, on average, and sort of consistent with what we're seeing. So we think that's an interesting opportunity. Obviously, there still aren't many vehicles in the country at less than 1% of the fleet, but at 7%, you know, that's above what we would've anticipated to see at this stage.
Okay, great. Thank you for that color. And then just on the MOU that you mentioned with GrainCorp and IFM, is that primarily associated with looking at the production at Lytton that you're going through? Or is it a whole of Australia discussion that you're having with them?
Yeah. Hi, Scott, it's Greg Barnes here. Yeah, look, you're right on the first point. Its primary focus for now is looking at the feasibility of a facility at Lytton. And of course, we're working with IFM and GrainCorp because of you know the capabilities they bring, including GrainCorp from a feedstock perspective. But you know we're while the first the primary focus initially or the initial focus is on Lytton we are sort of bringing a sort of an industry lens to this to just see well what is the appropriate solution for the industry over time and how do we think technology might evolve over time? But in the short term Lytton and assessing the feasibility of a HEFA or a fats and oils a denominated feedstock.
Of course, we'll work together on how we think that industry would unfold, what GrainCorp might need from a feedstock, from a capital perspective, to provide the necessary feedstock, how we size the plant, and what government policy we believe is required to enable that industry to get out of the ground. That's an important aspect of this and will be critical to returns and early viability. We'll be working together on all of those factors.
I think Queensland's the best location, Scott, from a feedstock point of view, and we can benefit in Australia, and we can benefit from the existing refinery in terms of the synergies there, but ultimately, this is gonna come down to requiring the right sort of policy, as Greg said, to get something up and running.
Understood. Thank you very much.
Thank you. The next question comes from Henry Meyer from Goldman Sachs. Please go ahead.
Good morning, all. Thanks for the update. Can you just expand a bit on that last point on the renewable fuels project? Able to step through both the current outlook, where you see Ampol and Australia's competitive advantage across the supply chain, more broadly through the APAC region?
Yeah, sure. So, a little bit of the answer to that question will depend on government policy, quite frankly. But if you were to just step back and look at what Australia does in the agricultural space, and particularly around things like canola oil, you know, about a big proportion of canola oil that's produced each year is exported into this process. So it's a terrific opportunity for the country in terms of downstream processing potential. But as I say, it will depend a little bit on policy, the treatment of some of these feedstocks, how they're assessed from a carbon intensity perspective. But of course, It's early days. We won't be pursuing anything that we don't think is either viable or internationally competitive.
My only build on that would be this: we would be looking at this with primarily a domestic supply focus, but naturally, it would need to be a competitive refinery. And we believe with a combination of our infrastructure and people at Lytton, as Matt touched on, the feedstock capability of the country, and the supply-demand balance globally for these products, given the various government mandates that exist around the world, that there's the potential for opportunity here if the policy setting's right.
Great. Got it. Thank you. If we can expand a bit on the QSR performance from earlier, are you able to share what the QSRs have contributed to total shop revenue and margin in the half, and how that might compare to a comparable site?
Yeah, it's too small at the moment, Henry, to give much data on that. They are. We've confirmed they're high margin, they're high margin businesses. And, you know, the right offer and the right location performs really well, so on our highway sites, performing really well. Greater operational complexity, and so you need to execute really well and make sure you've got that capability, which is what we're building. It's not material to our result overall at the moment because we're testing that offer, and we're building that capability.
Great. Thanks for that. And maybe just a quick one on that then. If we go a bit of a higher level, then, what are the metrics that you've defined for success or failure through the trial?
So it really comes down to, can we deliver the returns that are greater than the return? You know, we have a lot of QSRs across our network at the moment, where we effectively have a yield based arrangement. So we need to, for the capital that we will deploy in this space, we need to be able to deliver returns that are material in excess of, effectively a rental arrangement, and that's how we're benchmarking ourselves.
Great. Okay, thank you.
Thank you. The next question comes from Rob Koh from Morgan Stanley. Please go ahead.
Good morning. Can I ask just a question about New Zealand? I believe at February, you guys were talking about maybe a 35-site upgrade program for the year, and it looks like in the half, you've kind of done maybe 13 sites. Is the ramp up increasing or have you just adjusted plans given the way the market's going?
Yeah. So it, it's Greg, Rob. Thanks for the question. Yeah, look, your numbers are about right. I actually don't have the absolute numbers off the top of my head, but the numbers sound about right. We're, we've got the next phase, so we've done that as essentially a trial and a pilot. We stop, pause, test, move to the next phase. We're moving into the next phase of roughly 20 sites over the next 6 months-12 months.
They're performing well, and one of the things we've taken out of the first phase is just to be a little bit more targeted in the build, which will just, you know, put some downward pressure on capital expenditure and just make it that marginally more efficient deployment. So, we're pretty encouraged from what we see, and it's going well. But I think the numbers are 13 sites-15 sites done already, and the next phase is around 20 sites, from memory.
Okay. Sounds good. So we should maybe be looking for 2025 to see the impact of that refresh program.
Yeah, I think.
Is that fair?
I think that's a good comment, and I think that's a fair comment, and I did call it out in the presentation as well. I do think we are seeing some of the benefits of that starting to flow through on the sites that we've done.
Yeah. Okay. Sounds good. Okay, and may I also ask a question about your SAF and biofuel strategy? I guess, we've seen Qantas still has its 10% by 2030 target, and Air New Zealand changed its target in a quite high-profile move. How important are the airlines to that progressing of your feed on the biofuel, please?
Yeah, so obviously they're gonna be key customers, much as we see renewable diesel and SAF as both being important products. So for heavy transport more broadly, and not just aviation. Obviously, the aviation customers have been very active in advocating for a SAF market to be developed. But I think at the end of the day, the product, if you look at the stage of the industry and its early stages, the product is more expensive. You know, SAF trades at roughly three times the cost of regular jet fuel.
And so voluntary targets, if you like, are going to be very hard to sustain, and that's what I would take out of some of the announcements that you've seen. And it really reinforces why policy support is going to be so important, both on the supply side and on the demand side, because you need to have, insofar as possible, a relatively balanced playing field from a competitive standpoint. So targets that sort of are voluntary when there's not a level playing field are not gonna be particularly sustainable, and I think that's what we see playing out. I think governments are aware of that, and aware of the importance of policy settings to get this industry off the ground.
Yeah. Yeah, I hear that. So maybe can I just drill into that just a little bit? 'Cause you, you've got the aviation fuel stream, but and then there's just the heavy industry or heavy transport space as well. Does the feedstock and the CapEx give you kind of optionality across both of the streams, or is it a bit specialized?
No, it gives you, I mean, depending on the plant that you build, but yes, you have flexibility around the production mix that plays out. SAF is more expensive to produce than renewable diesel, but you do have flexibility around your product slate.
Yeah. Okay, thanks. That's it for me. Appreciate it.
Thank you. The next question is a follow-up from Michael Simotas from Jefferies. Please go ahead.
Oh, thanks for letting me back in the queue. Just a follow-up on the International business. I think, Greg, that was a pretty good indication of how we should think about the business going forward. If we look at the half that's just been reported in the second quarter in particular, were there any sort of individually problematic trades or cargoes that impacted on earnings, or was it just the lack of opportunity in that period?
Look, it's fundamentally. So the answer, Michael, is no, in terms of individual cargoes. It's not like that period where we were sort of coming out of the Russia-Ukraine turmoil. There's two things fundamentally happened. The largest of which is we've just had such record high plant utilization and reliability globally from refineries. It's just meant that the market's been reasonably well served. In Q2 in particular, it was just very few disruptions that create those market dislocations, that then create opportunities for the team. And to the extent there was any consistency, cracks kind of just traded down marginally over time.
And, you know, as a result of some of that supply stability, which just makes it that little bit harder to make any money. So I think it's. I wouldn't read too much into it. I think the important thing is to look through it and just look for consistency over time. We're pleased with the position we have and its potential to deliver real earnings growth for us over time.
Yep. Okay. Thank you.
Thank you. That does conclude the Q&A session. I'll now hand the conference back to Mr Halliday for any closing remarks.
Thanks, all, for your time this morning. Look, I think real highlights are the strength of the Convenience Retail result in Australia and the New Zealand result. They continue to demonstrate ongoing growth. Z is performing very well post-acquisition, and I think the evidence we see in Convenience Retail gives us real confidence that we can continue to grow earnings in that part of the business. Thank you for your time this morning, and look forward to catching up with you in the coming days.