Viva Energy Group Limited

Thank you for standing by and welcome to the Viva Energy Australia full year 2020 results. 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 via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box. I would now like to hand the conference over to Mr. Scott Wyatt. Chief Executive Officer. Please go ahead.

Good afternoon and thank you all for joining us today as we discuss VEVA Energy's financial year 2020 full year results. My name is Scott Wyatt, the Chief Executive Officer of VEVA Energy and on the call with me today is Yvonne Bisray, our Chief Financial Officer. We're heading into 2021 having successfully navigated one of the most challenging years in VEVA Energy's history. The results I will be presenting today reflect how well our organisation has worked together in 2020 to respond to the challenges presented by COVID-19 and an extremely difficult refining environment. In the early stages of 2020, we were quick to implement effective COVID-straight operating procedures and adapt the supply chain to respond to rapidly changing demand. Throughout the year we have demonstrated a strong financial discipline, entering the crisis in a strong net cash position following the divestment of our stake in Viva Energy REIT and maintaining good control of both cost and capital expenditure. As we end 2021 I believe we are extremely well positioned for recovery and growth with high performing retail businesses, a robust commercial break-flying business and good progress with the Federal Government on the long term fuel security package. also provide more long-term opportunities and we're very excited about the future for that particular part of our business. I'm very proud to say that during 2020 the company maintained its strong focus on safety despite the challenges of the COVID environment and the significant work involved in completing major maintenance work on a residual catalytic cracking unit. During 2020 we achieved a 20% reduction in the number of recordable injuries compared to 2019. At the same time, we undertook proactive and effective safety measures to protect employees and their families from exposure to COVID-19. In terms of sales and production performance, I'm also pleased to report that we were able to successfully adapt to the changing and challenging market conditions. While total demand for transport fell 15% over 2019, we achieved growth in diesel sales, improved our premium fuel penetration and maintained total market share. Our refinery production rates were naturally reduced as a result of the decision to bring forward and extend our major maintenance program and our team at the refinery successfully adjusted the production mix to adapt to significant changes in market demand and the refining margin environment. The highlight result for me in 2020 is the strong online performance in the non-refining business, our retail and commercial businesses, which increased by more than 16% to $614.5 million This was driven by strong vehicle sales, improved retail fuel margins compared with 2019 and a robust performance in our broader commercial specialty businesses. Group results were of course heavily impacted by COVID-19 and global weakness in the refining sector, which for our refining business report a $95 million loss and taking the company to a net profit after tax loss of nearly $36 million for the year. I am however particularly pleased, given that environment, that we are able to return nearly $650 million to shareholders through a mix of dividends, capital management and still finish the year with a low cap of just over $100 million. I think we are extremely well positioned to recover and pursue growth as life returns to this market. In terms of our progress on our strategic priorities, Beaver Energy is a company fairly focused on the future and despite the challenges last year, we have made significant progress on a number of strategic priorities that I believe will set us up for growth in 2021 and beyond. Active management of retail pricing and customer campaigns delivered an exceptional result in our retail business, while continuing our strategy to recover share in our core retail channels. We also continue to close gaps in our retail networks which now exceeds over 1,300 service stations right across the country. While it was an extremely challenging year for refining, we have taken significant steps to improving the long-term sustainability of this part of our business by working closely with the Federal Government to develop a framework which I believe supports the long-term viability of the refining sector. The interim production plan in place provides welcome support during 2021. and we remain optimistic about finding a long-term solution in respect of the fuel security package. We maintain a strong capital management discipline throughout 2020, divesting our non-core shareholding in Waypoint Reef and returning the bulk of these proceeds to shareholders via capital return and special dividends. We aim to return the remaining $100 million once the long-term outlook for the refinery is clearer. Of course we also announced our vision to establish an energy hub at Geelong and we've made serious progress with our consortium partners of the development of the proposed gas terminal project. This project and others aims to leverage our position at Geelong and our capability and will generally support our development of new energy opportunities. Let me now hand over to Javad who will discuss our team financials in some more detail. Thanks Scott.

I'll kick off on slide 11. There are really two parts to our results for 2020. Despite a really challenging year for Australia, our retail, fuels and marketing non-refining business performed extremely well. As Scott said, up 16.5% on 2019 to an underlying EBITDA of $614.5 million. The standouts here were really retail and supply corporate and overheads, with commercial impacted by aviation demand for the majority of the year. I'll cover each of these in a bit more detail as I go through the pack. As you know, refining was the part of our business that was really challenged by the pandemic and the impact on regional refining margins. EBITDA moved into a loss position for the year of $95.1 million. Overall, underlying impact recorded a loss of $35.5 million for the year, down from a profit of $135.8 million in 2019. While distributable impact for the second half recorded a $1.5 million loss, the first half recorded an impact profit of $24.3 million. Turning to slide 12, the bridge on this slide sets out the material impacts for the year at a group level. The integration of Liberty and Westside delivered $22 million of benefit. An overall margin improvement of $129 million was driven by retail. more than offsetting the volume loss in this part of the business. You can see that the single biggest impact by far has been regional refining margins, impacting the result by $178 million. COVID-related disruption on a net basis impacted the business by nearly $100 million, with overall volume and production losses collectively resulting in another $178 million impact. This was partially offset by an early focus on cost control and lower supply chain costs to manage the impact of the disruption, combined with the receipt of some JobKeeper support. On slide 13, retail underlying EBITDA of $670 million showed just how resilient this part of the business can be, despite the demand disruption that we saw. Retail margins recovered by $124 million from a low base in 2019. more than offsetting the volume impacts during the year, and it's been pleasing to see Alliance volumes recovering after the worst of the COVID-19 impacts in the first half of 2020. Our decision to acquire the remaining 50% of the Liberty regional and west side businesses delivered a benefit of $22 million for the year. We also added 38 new stores for the Shell and Liberty branded network during 2020, taking our total network to more than 1,300 stores. Slide 14, in commercial, underlying EBITDA of $238 million was down, primarily as a result of the aviation impacts. Border closures and lockdowns pushed down aviation sales volumes by $67 million, which is marginally offset by the receipt of some job keeper support in this part of our business. A focus on cost and the diversified nature of our broader commercial business meant that outside aviation results held up fairly well. Early and active management of customer credit meant we were able to successfully manage bad debts, such that we did not experience any material impacts. Slide 15 sets out the magnitude of the impact to our refining business. Refining was heavily impacted by the decline in both domestic and global oil demands. Underlying EBITDA was a $95 million loss driven directly by regional refining margins at $178 and lower refining production of $69 million to manage the impact of COVID-19 restrictions. Again, a strong focus on costs and the receipt of some JobKeeper support marginally offset these impacts. The actions taken to maintain production and bring forward major maintenance helped to mitigate losses, and we've seen some small improvements in Geelong refining margins since returning to full production in November 2020. On slide 16, and overheads consists of our integrated supply chain of terminals, facilities, depots, pipelines and distribution assets located right across Australia, as well as site maintenance costs and all our head office and corporate costs. As I mentioned earlier, we acted quickly on costs early in the year and combined with lower supply chain costs delivered a significant reduction in operating expenses. reducing the cost of this segment from $333 million in 2019 to $295 million for 2020. Slide 17 sets out our cash flow bridge. Working capital reduced by $97 million, partially offsetting the net inventory loss of $257 million. And when adding back the impacts of the sale of the Waypoint REIT state, and associated capital management, the underlying free cash flow of the business was $87 million. The positive underlying free cash flow was driven by a focus on cost, both operating and, more importantly, capital expenditure, despite the lower underlying impact. Slide 18 sets out the movement in the balance sheet of net debt. The impact of net inventory loss during the year was partially offset by a release of working capital that I mentioned earlier. And after accounting for the $100 million of remaining proceeds from the Waypoint REIT sell-down, our balance sheet remains strong with relatively low net debt and plenty of headroom in our US $700 million debt facility. Slide 19 sets out our capital expenditure for 2020 and the guidance for 2021. Strong focus on managing capital expenditure during 2020. Helps manage cash flow and maintain a strong balance sheet position. with capital expenditure of $159 million for the year relative to our original guidance of $250 to $300 million. Group capital expenditure for 2021 is forecast to be in the range of $185 to $210 million, returning to a level that's more consistent with historical levels in the business. The refining major maintenance scheduled for 2021 is the HFA unit, which was originally part of the planned 2020 turnaround works and deferred to 2021. Finally, on slide 20, significant one-off impacts included the $179 million gain relating to the sale of the Waypoint REIT stake. The underlying impact RC loss of $35.9 million is in line with the guidance update provided to the market in December and translates to a distributable impact of $22.8 million for the year. In line with past practice, we've referred to distributable MPAT when considering the payment of the dividend for the period and with the distributable MPAT loss of $1.5 million in the second half of 2020, there will be no final dividend for the six months ended 31 December 2020. I am pleased to report that despite the challenging 2020, the company returned $595 million for shareholders throughout the year. Consisting of a $15.5 million first half dividend, a $115 million special dividend, a $415 million capital return and $50 million on market buyback. This is a key priority for the company to return to a positive distributable impact for the first half of 2021. And now I'll hand back to Scott to take you through our focus on the recovery now.

I'd just like to turn to slide 22 and just touch for a minute on our historical business performance. This slide sets out the cash contribution, which is either the less capital expenditure of our refining and non-refining businesses over time. As you can see from there, despite the impact of COVID-19, the non-refining businesses, which of course is our retail and commercial segments, have delivered strong cash contributions growth over a relatively long period of time. With gradual recovery in commercial segments and continued improvement in our core retail businesses, we see opportunities for continued growth into the future. Whilst refining head-to-head periods have strong contributions in 2015 and 2017, as you can see from the chart, have of course been impacted by weak refining margins since 2018 and of course more dramatically by COVID-19 in 2020. With the support of an appropriate fuel security package and some self-help initiatives such as the development of the Energy Hub project, it is possible to see refining returns delivering reliable and acceptable returns into the future and begin to make important positive contributions to our business. Turning to slide 23, over the last three years, Beaver Energy has been working to build a solid foundation for growth and this is what has put us in such a strong position to deal with the impact of COVID-19 last year. The renegotiation of the alliance agreement in 2019, the acquisition and growth of the Liberty businesses and the diversity of our commercial businesses have all been key to our strong performance in the non-refining businesses last year. Maintaining disciplined capital and cost management together with our sensible response to COVID-19 has preserved cash and helped us in 2021 with a very strong balance sheet and continued capacity for recovery and growth. Turning to slide 24 which sets out the priorities that we are paying that we have in place to deliver sustained recovery. We do have a robust recovery phase in place and we do expect to return to growth over the next three years. and are already well advanced on the implementation and delivery of these initiatives. These will be a key focus for us over the next three years. To finish slide 25, our priorities for this year particularly are very clear. Resolve the future of our refining business, restore this to positive returns, pick up the pre-COVID growth momentum in our retail businesses and be ready to capture growth in the commercial sectors still heavily impacted by COVID-19. We expect to further develop the Geelong Energy Hub project and maintain the strong capital discipline that has served us well over the last year. Finally on slide 26, our outlook for 2021 is expected to remain challenging and uncertain for refining but we retain a largely positive outlook across most parts of our business and we're really excited about the year ahead. Before I hand over the questions, I would like to take this opportunity to acknowledge the contribution that our Chief Operating Officer, Tate Haynes, has made to our business over the last six years. Tate has successfully led the refining business for most of this time and will retire from Deaver Energy at the end of March. I want to thank him personally for his support and leadership and wish him all the very best for the future and congratulate him on his expanded role as Chief Operating and Financial Officer of the company going forward. On that note, Siobhan and I are now happy to take your questions.

Thank you. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box. Your first question comes from Mark Santer with MFT Marquis. Please go ahead.

Good morning, guys. A couple of questions, if I can. Are you able to give us a bit more, I guess it's hard with everything moving around so much on the volume side in retail, but for how you feel the alarm sites in particular are tracking in terms of market share and where you hope they might drop out when fully recovered retail volume is back?

Yeah, I think really, thanks Mark, thanks for the question. I'm really positive about, I mean naturally about the retail business given the results that we achieved last year. You know, we came, as you can see on the pack, we delivered an average of sort of 59, nearly 60 million litres a week in quarter four, which of course includes a fair amount of time with Victoria still under the restrictions. So, you know, I think in that context, given that environment, I'm pretty happy with the performance of that. You know, we were sort of exit last year and with the 2021 with most states now allowing harder restrictions you know it's fairly upside from the result that we turned in in quarter four last year so Based on a share perspective, I think we've held shares through some particularly volatile times last year. We did maintain a reasonable level of investment in our customer campaigns last year and that's supported a pretty strong performance cost fuel given in the context of the challenging environment but also a shock and I think you can see that in the results that went out of site calls recently with community sales up 10%. I think that really demonstrated the role that community stores play with people shopping close to their home and obviously our brands being a brand of choice through that time. Yeah, I think whilst it was a destructive year, we obviously lost the momentum that we had coming out of last year in terms of restoring growth through the Elias Network. I think we're well-placed to pick up on that and move forward this year. And notwithstanding that, of course, the other retail channels have done well. I'm really pleased with how Liberty Convenience has progressed last year with a number of store openings and our own dealer network, which are more regionally located and probably have performed pretty well given that regional areas were largely less affected than the metro areas.

Go on, could you just give us a bit of a refresher within that retail business on the share that is diesel? I mean, obviously, diesel just about seems to price as almost a fixed price product at the pump at the moment, and so the diesel margins have been under pretty material pressure, but Alan, I guess maybe explain some of the difference in your outlook statement to it. some of you or one of your listed peers perhaps that you're less exposed to that diesel. Can you give us just a bit more insight, I guess particularly diesel had a lot better in terms of volume in retail last year, how we're tracking at the moment in the retail business from diesel's share of the net?

Yeah, I think, well, if diesel's of course a retail and commercial story, of course, so you've got to look at it in that context, Mark. I think, yeah, I'm pleased to see that diesel actually grew last year for our business despite reductions we saw in many segments and that's a reflection I think of the fact that commercial outside of aviation sectors continued fairly uninterrupted throughout the year and so we enjoyed good performance outside of aviation right across commercial. very strong agricultural season which benefited both retail and commercial in terms of delivery into those segments and of course that's an area that we've invested heavily in in the last few years through the acquisition of Liberty Wholesale and we now have quite a strong presence in rural Australia and we've benefited from that and I think one of the things we aim to taking over responsibility for the whole complete fuel, the renegotiation of the arrangements with the Alliance was to restore growth in our diesel business and retail, particularly through the development of our business offer through Shellcard to customers and I think you can see some really signs of success in that area in our diesel performance last year in retail. So I think those are the key trends, Mark.

Perfect. I guess I might as well be the idiot to ask the question that you can't answer on the government support package. Is there anything you can say about where the point we're sitting at in terms of the negotiation? Is there a reasonably clear feel for how it looks and we're connecting the details or are we a bit further away from conclusion than that?

No, I think it's progressing well. developing a long term framework which is what we are working on and what is ultimately important for our sector is going to take some time so I think we need to appreciate that. It's not as simple as just what is the refining production payment level that needs to be set. It's also important to understand the government's plans for minimum stock holding obligations and now how that affects importers and also how the funding is going to be managed for the production payment as well. It's the workings of those three components that ultimately determine how refineries will be positively impacted through the fuel security package. And so working through the workings of those and how that will get implemented is obviously going to take some time, but it's important to understand because that will obviously drive the long-term outlook. So it's going well. I mean, Minister Taylor is obviously very supportive of The sector working hard to find a solution that's ready for remaining refineries to continue to operate. The department is working through this at quite some pace and we're heavily engaged and I remain hopeful that we will understand more definitively what that framework looks like before the end of the half. Perfect.

Thanks. Your next question comes from Adam Martin with Morgan Stanley. Please go ahead.

Hey, good afternoon. Just on the Exxon and BP refinery closures, can you just talk through any arrangements you have with those companies and I suppose just the implications of those two closures on your business, please?

Yeah, sure. So, yeah, the Kunana closure for us is more of the implications there. What's the right way and optimal way for us to continue to supply our market in Perth? Do we... and there's obviously options to continue to purchase from BP in the way that we have done for quite some time as they operate as a refinery or move more to a self-supply model and import directly. So those are the options, broadly the options that we have there in Perth. I think the more material implications for Geelong is obviously the closure of Altona because that operates in the same state as Geelong does, in the same market. I think putting aside the disappointment to see a refinery close, and that's because obviously there are impacts on people and other businesses, I think broadly it's a positive development for the long-term outlook for Geelong because the market for local production, if you like, has now increased because prior to lost Altona and Geelong operators largely enough refinery production to service the whole of the Victoria market with Altona closed, obviously the market for Geelong production was greater and we should have more opportunity to sell our surface production locally rather than having to send it out to other states. I think that's a potential opportunity but also a more structural change that will occur of course is that Victoria will move to a net import market and so the demand for imports will grow. That also presents an opportunity for Geelong because Geelong has had the ability not only to act as a refinery but also to act as an import location and we already do report on the margins where demand in Victoria exceeds our production. we have opportunities to really participate in supporting that import demand going forward. And that's entirely consistent, as I said, with our vision for building Geelong into an energy hub. Having our import capability alongside refining capacity has a lot of synergy with it and utilises, obviously, the infrastructure that we already have there and can be developed further. So, yeah, I'm sort of looking at that as a long-term real opportunity for our business and very supportive of our broader strategy around developing a first-class energy hub that will support Victoria in a more material way in the future.

Okay, thank you. And just the second question there, just the other volumes that you report there, they've almost fallen to zero in the second half of 2020. There's a small figure there, but it's pretty low. Is that primarily the marine business? Can you just provide some context on those other volumes that you report, please? Oh, I haven't got the slide in front of me, but it's the other volumes where you put out diesel, petrol. And you can only work it out by looking at first half versus second half. I'm looking at slide seven. I come back to you if you like.

Yeah, maybe. I'm looking at other volumes here, 788 million litres.

And I think you reported like 750 or something in the first half, so...

I think it's largely the fall off in fuel oil because we obviously had a cruise season at the beginning of the year and not so towards the end of the year but there was a number of mitigations that we took around barges and costs and managed the impacts of that down to a fairly small impact to the overall commercial business. And most of the specialty products that we sell are pretty low volumes. And as you can imagine, things like lubricants and bitumen and those sorts of products.

Yep. Okay. Okay. Makes sense. I'll let someone else go. Thank you.

Thanks, Adam. We do ask that you limit your questions to two per few today. Your next question comes from David Moore with Goldman Sachs. Please go ahead.

Thanks, guys. Just to follow on from the out-of-turner query, are you already in negotiations with Exxon for an increased domestic crude supply potentially? And are there any other synergies you think you might be able to yield out of the change in the market structure? And just one on the buyback. I know you mentioned that you tend to see a clearer look at the long-term outlook but Does that for you come when you have certainty on the market structure for the subsidy or do you think you'd actually need to see it implemented before you have a more certain outlook for your refining business?

Yeah, no, sure. So I can't talk to you about specific commercial negotiations that we have with counterparties but I think broadly, yeah, we are a major consumer of domestic crude. Typically Geelong will process about a third of its diet from local sources and that includes Bass Trail, Cooper Basin and other more local fields. So obviously if there's fewer refineries in Australia then there's potentially the opportunity for us to process more crude and adjust our diet going forward based on what cruises are available in the market. that will obviously develop more fully once refineries are actually closed and those crew supplies are available. So we certainly see that as an interesting area and we'll obviously continue to monitor that. And then I might get Siobhan to talk to the couple to return the question.

Thanks Scott. I think there's probably a couple of points on the capital management. We're certainly committed to returning the $100 million in due course in line with the commitment we made last year. I think you're right. Some clarity on the refining outlook in the context of the sustainability of that part of the business is really what we're looking for and I won't go into detail on the discussions with government and the potential to get a solution that will give us confidence to run that business into the future but certainly that's the sort of thing that we'll be looking to understand before we make any decisions on returning further funds I mean we've taken the government on their public commitments to date and obviously there was an announcement last year by Minister Taylor and Prime Minister Morrison about the long term security package and that delivered on that in the context of the first half of

interim production payments that they've put in place. So I think as we conclude the discussions we're having at the moment about the long-term fuel security package, I think we can get confidence on the outcome of that potentially to move forward with the capital return even before it's implemented. But obviously you need to see the details.

Thank you.

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

Afternoon, Scott. Hi, Yvonne. Scott, your presentation, if you go to slide 13, I mean, the same question has been asked of Antol and everyone, basically, in the industry. But clearly, there's a couple of really positives there with that waterfall. The 22 million Liberty Oils, I mean, that was really pleasing. And then you've got the recovered retail margins of 124 that more than offset significantly the alliance log into 42. Now, my question on this is, how much is that a structural recovery? Because when you look at that benefit, the 124 over 42, it's an 80 million net benefit. How much is that a benefit relative to previous market inefficiencies, in other words, the market is too low in terms of margin, compared to how much do you think you're borrowing and might need to give back in 21? Now, I know you don't want to give forward-looking statements, but the number one question we're all asking in retail in 21 is, you know, when volumes pick up, will you be able to keep that retail margin or will you have to give some back?

There's two parts to the question I think. We're coming off a low base in 2019 and you can see that quite markedly when you look at slide 22 which head out the performance of the non-refining business since 2015. You've got a big step up in 2016 as we started to adapt our strategy with the Alliance and in 2008, Premier has seen steady year on year growth with a decline in 2019 where we recently obviously took control of fuel pricing and had a very difficult time in the market as pricing strategies were adapted and 2020 seeing returns of the trajectory that we saw from the years prior. So there's a bit of a reset there from the year before, which I feel is bankable. But if you think about 2020, there was also a period where we had rapidly falling oil prices and quite a benefit to the sector from that as well, which may not be repeatable in 2021. I think it's got some reason to be optimistic about retail volumes continuing to increase through the course of the year too. So I think you've got to think about that factor playing into it as well. But the best thing, I mean the great news for us as a company, David, now is that we have all the levers, right? So we have the ability to set pricing and manage sales outcomes and drive our business much more directly than we were able to before we renegotiated the erasements with Coles and That has served us incredibly well through 2020, and I have no doubt it will serve us very well in the year to come and the year ahead as well.

I'm glad you mentioned slide 22, Scott, because that's the next question where I was going. When I look at that, you probably guessed that, and you probably know where I'm going with the question. I probably don't even need to ask it, just by highlighting it. Your underlying performance... In terms of what is all controllables, it's a pretty strong result. I mean, really, you've done extremely well. You've got to be pretty pleased with your management team's performance. And that slide, given that we've been in a very COVID-impacted year in training, I'm talking the light blue line, is incredibly encouraging. You know, when you look at... You've potentially got the recovery in commercial overdue course with Jet, etc., You've got retail that you're in control of. Yeah, there might be some retail margins there, but you've got volumes coming through. You've got Liberty Oil that came through. There's a lot of good things going on in that light blue line. But I've got to tell you, Scott, that dark blue line doesn't encourage me. And it's just, you know, I know that you're talking actively with the good minister and all the rest of it, but as a shareholder, you're going to have to come up with something pretty sweet, a lot of sugar, to get me across the line that's resigning there. So look at your light blue line. It's a good line, but the dark blue line, well, you know, black hole is, you know, it's probably, you know, it's black, and it should be black, not dark blue, because it does look to be a black hole to me.

Well, if it was done in red, that might have been helpful, but... So you see it as a problem, I see it as an opportunity, David.

Oh, yes. Please explain.

The purpose of this slide was to show, look, the non-requiring business, as you say, has, I think, performed really well over a long period of time, and yet some challenges in 2019, but recovered well from that last year, despite last year being a pretty unique year. I think it's a recovering commercial down the track as well. I think there's a lot to be positive about in terms of the underlying non-refining part of our business. If you turn that refining number from the negative 2 and 12 cash to a positive number again, which can come from returning to full production, getting the right package in place with the federal government to give it long-term sustainability, and maybe some improvement in refining margins over time as the global economy recovers, then suddenly you've got a really good, you've suddenly got a very different business than what we saw in 2020 going forward. And it doesn't take much to turn that around. Yeah, I mean, I must admit... And if it doesn't turn around, then you've changed your business model and that refining segment disappears.

So... It is cash thirsty though, isn't it, Scott? I mean, that's the problem. I mean, you've got more CapEx this year. You've probably got $50 million to $60 million every year of cash flow going out from CapEx.

No, you're right. And that's why the fuel security package is really a critical piece of the direct store for refining. If we didn't have the announcement last year from Minister Taylor and Prime Minister Morrison and the insurance support package in place for the first part of this year, we probably wouldn't have a refining business. So I think we obviously take a lot of confidence from that and we've still got to deliver on it. I get that. But as I said before, I think the discussions are progressing in the way that I was hopeful they would. And we should have, I think, a clearer direction within the next few months. So I think it's been worth it. It's been worth continuing. I think it has the potential to return to a positive contributor, which I think will really turn around the performance that we saw in our group business last year.

Swing factor. Well, well done on the light blue, Pastor Scott and Geron. Let's hope that that black number, I know it's not black, but let's hope that that's the big swing factor and can at least get back to neutral.

Your next question comes from Sean Cousins with J.P. Morgan. Please go ahead.

Thanks. Good afternoon. Just a couple of questions on the Geelong Energy Hub. You've quantified sort of capex of $250 to $300 million and FID in, say, mid-2022. Can you sort of talk about will VIVA incur all or part or none of that sort of capex and over what time horizon and How do you see the Geelong Energy Hub positioned relative to what AGL are proposing, but then also relative to what's going on in Port Kembla and if they cross over in the same market, et cetera, please?

Yeah, sure. I can maybe kick off, Sean, on the capital components. Scott will no doubt make some comments around the competitive position of the facility as well. I think from our perspective, we've put the $250,000 to $300,000 out there. in the context that that's the approximate range that we expect will be required to construct a facility of that nature. I think you're right on the fact that we've got a couple of pretty credible partners signed up. We're progressing the opportunity both on our own and together with those partners and opportunity for us to work with them in a way that gets an appropriate return for a project of that nature and that might mean sharing the capital investment, it might mean looking at different models and so as we get closer to a final investment decision we'll start to cross those things out in a little bit more detail. I think for now, as you say, you shouldn't necessarily assume that we're going to need to spend all that money ourselves. And in the event that we do, there's obviously return hurdles that we'd be looking to get us comfortable with taking an FID position when the time comes. And again, it takes time to construct a facility like that, so it's not something that we'd outlay all in one go, and it would happen over a couple of years, obviously. Right.

And how's the position, please, Phil? Sorry? I'm sorry, how do you think Geelong stacks up? which seems a little bit more progressed than AGL, which is not as progressed?

Oh look, I think you would expect me to say this, but I think our project is advantaged because of the fact that it is an existing facility. The development and construction of our project I think should be more straightforward. I think the activities that we're bringing in with part of the energy input facility are pretty sympathetic to what we already do there and how that should ultimately translate into a more streamlined, more simplified approvals process as well. We have a track record of operating 60 years. We know what we're doing. I genuinely believe it's the right place to locate a facility like that and obviously If you stand back from it all, from the commercial aspect and think about what's right for the state, anything we can do to support the longer term sustainability of the refinery, which having other projects like the LNG input facility, it all helps and it actually provides the critical mass and sustainability that we need and diversified earnings for the site. So there's lots of reasons why our project is the right project to back. But we acknowledge we're competing with another two projects and it remains to be seen which ones of those actually progress through to being constructed. We're focusing on ours and working forward as quickly as we can. I think we've made remarkable progress given that we only announced this project less than a year ago and we're already into Frontier Engineering Design, we've already brought on some really high quality consortium partners that now also see the same opportunity and I think that's a real vote of confidence for the project as well and for the other projects we want to do at the site. So I think we'll consider it in our own way and remain pretty positive about it.

Great. And my second question is around Kwinana. I understand our poll have had to come out and say that they're talking with Tracey on the Kwinana sort of terminal, but also we understand that it's not exclusive. Is that a terminal that would be of interest to VEBA? And are you engaged with them?

As I said before, Sean, I think we've got a couple of options now in simple terms, and there's always more than two, but we continue to work with our traditional supplier in St. Perth, which is BP, or we can run our own rates and and import into the state. We sit already in a terminal in Perth which is an industry terminal with others, so sometimes running your own race means that you do end up working with others to import into there because you happen to be using the same facility and obviously there's synergies in importing with other states. There's lots of different options that we have there for Perth and obviously with the landscape now changing, we'll work through that and settle on what's the best commercial outcome for us. going forward. It's good to have more than one option, Sean, so I think that is always helpful in terms of getting the right competitive outcome.

And any comment on TrackU? Are you actually talking with them on that facility?

I think, as I said during the crew discussion, we can't make comments about the commercial future. You'd expect me to say that.

Fair point. Thanks so much. Thanks, Sean.

Your next question comes from Joseph Long with UBS.

Hey guys, just two questions from me. Just to kind of look at the energy hub, just over the next 18 months, can you provide a bit more detail on the milestones you want to achieve before entering FID?

Yeah, so front-end engineering design work this year, we're hoping that will progress to a point where we can take FID in the first half of next year. and then obviously move into construction and have gas flowing from early 2024. That's the sort of broad milestones that we're hoping to achieve. Back to that particular project, now obviously other projects are less developed. We announced recently the alliance with Hyzon Motors which is really a platform for us to potentially move into green hydrogen manufacturing and we will And interestingly, beyond that is refueling, creating a market for heavy vehicle hydrogen use and participating in the refueling of that market as well. So that's called more sort of market maker type projects, but it gets us into what will be an emerging energy space over the next decade and early days, so not necessarily something that's going to generate significant returns, but I think it's in terms of investing for the future and And building experience and credibility, it's a good project to be involved with, but a problem project to be involved with with others to share the risk experience.

Yeah, yeah. And then my next question is, you're talking about the refiner, you're looking to have it return back to sustainable profits. I just wanted to understand if you have, I guess, a break-even scenario margin target that you're kind of looking at going forward. So what you can control, I saw you've done $15 million of cost improvements in 2020. Should we expect more in the following years?

Yeah, I think I can tell you that, Joe. I think there's been a very strong focus on cost right across the business through 2020 and obviously that will continue into 2021, particularly in the areas of the business that are yet to experience a full recovery. I think in the refining space a return to full production in November means a little bit of cost comes back and some of the cost that we were able to achieve was because we were running in an impaired mode throughout the year. At the same time a return to full production brings just that, some additional production and therefore the ability to earn some additional margin and with a small improvement in margins that we saw through November and December. and that all goes to helping get back towards a break-even level at the refinery, not to mention the interim support package that we've been able to achieve. So I think it won't necessarily be one item that supports the refinery getting back to a positive earnings contribution or a sustainable return to the business. It'll be a combination of all those factors together. And so, you know, a bit of self-help on our part, plus an outcome from the discussions with the government. But certainly as we go through that process, what we're focused on doing is getting that refining business to a point where it delivers a sustainable return, because obviously, and I think David mentioned it earlier, it draws a level of capital, and therefore you need to get a return on that capital, not just continue to break even. So that is part of our focus.

Yeah, thanks.

Your next question comes from Grant Salagow, Credit Suisse. Please go ahead. Mr Salagow, the line is open.

Sorry, I was on mute. My apologies. Just a couple of questions on the volumes, if I could. On slide 13, you've detailed the impact of the alliance Presumably there's a volume impact from other retail retailers that you supply. So just interested where that is sort of captured in the waterfall and any comments you could make in terms of whether it's sort of a similar magnitude impact across the rest of retail or would be?

Yeah, I can cover that, Grant. Yeah, I guess we've been pretty fortunate across that part of our business that while we have seen some retail impact with some of the dealers and wholesale customers, we've also seen some growth in the regional business and some opportunity there with a better regional season really, not to mention the growth in the Liberty convenience business which remains a joint venture that we have with the original Liberty owners. And so, broadly speaking, on a net basis, volumes have held up fairly well in that part of the business. And we find some of the retail segments, like you mentioned, but some growth in regional and the limiting convenience business largely offsetting that. That's why you don't see a separate supply, of course.

That's very helpful. And just a question, I guess, specifically, I guess, on the key for volumes. I don't know whether you can make any comments around how that moved through the quarter and how close we are back to sort of full recovery in automotive volumes.

I think we've still got some way to get to full recovery. I think that's the case right across the region. some aspects of border closures, some aspects of people not fully returning to work and whilst that's more public transport, it still drives mobility. So I think there's still some, whilst mobility does very quickly recover, restrictions are off, I think it'll take a little bit. It's also something that we'll continue to progress through the course of next year as people get more confident about how the country is treated when COVID-19 and just getting back to a more normal environment. So yeah, it'll take a little bit of time. But I think, as I said at the beginning, the alliance sales that you see there does reflect quite a number of weeks of Victoria still being in lockdown. And obviously we start this year, okay, a couple of five-day lockdowns, but largely into more COVID-19.

Okay. All right, that's all.

Thank you.

Your next question comes from Michael Simitas with Jefferies. Please go ahead.

Afternoon everyone. First question from me, I'd just like to touch on the comment in your outlook statement around retail fuel margins remaining at sustainable levels. I just want to understand the message there. Are you suggesting that the levels we're seeing in the marketplace for the early part of 21 is the right sustainable level or do you think that there has been some temporary margin compression given the oil price increase and you could see things get a little bit better from here?

I think you've seen some compression in the first part of this year because obviously oil prices have increased. been fairly steadily increasing Michael and as we all know it takes time for that to cycle through the retail market. It takes a few price cycles to get there so the margins are a little bit compressed as a result of the first part of this year. We're not trying to say that becomes the runway going forward at all but what we are saying We've had a recovery in 2020, after 2019 we don't see it going back to 2019. We think the market's been pretty rational through the most difficult periods of time and we expect that to continue through the course of this year. Notwithstanding, as I mentioned before, the real tailwind we had last year from falling oil prices and that could be repeated depending on what happens internationally but we're not assuming that will happen.

Yeah, that's clear. Thank you. And then the second one from me is on the alliance. And I just want to understand how you're assessing the performance of the alliance relative to the market. It looks to me like, based on the number you've given us for the December quarter, you average somewhere around 60 million litres a week in December. I mean, tell me if I'm wrong on that, but that's sort of what the math suggests to me. That's down about 14% relative to the 70 million litre per week pre-COVID peak that you called out last year. If I look at industry data, it looks to me like the market was pretty much back to normal pre-COVID levels in the month of December. So I just want to understand whether that's a regional versus metro mix or whether there's something in local area markets that I can't see from looking at the macro data. But it looks to me like the alliance has underperformed the broader market through the COVID period and then through the recovery that we've seen so far.

Yeah, probably... Michael, I'll probably test you a little bit on the base that you're using. I think when we talked about 70 million litres a week pre-COVID, we talked about having recovered in the second half of 2019 to 65 million litres a week as an average over a period, and the final quarter there was about 65 million litres a week too. As we came into the first quarter 2020 pre-COVID, we talked about seeing some weeks at 70 million litres and that was giving us confidence around the trajectory whereas the number we're talking being that sort of 59, 60 million litres a week average for Q4 last year is probably not necessarily comparable to those few weeks that you see. I sort of argue that in the Alliance you're probably more comparing the 65 million litres a week from late 2019 to the 60 or so that we saw in the final quarter of last year. There's always going to be a little bit of impact or difference between the total market and the Alliance. bit more of a metro focus and there's other parts of our business, Liberty and Liberty Convenience and others that capture more of that regional focus but I think all in all we're actually moving in a pretty good direction and we're seeing some pretty positive momentum in that part of the business.

Okay, so it sounds like we might have put a bit too much weight on that 70 million litres a week.

Thank you. But how about it doesn't suggest that we're seeing erosion in market share, my belief, or the holding ground where we want it to be.

Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. Your next question comes from Daniel Butcher with CLSA. Please go ahead.

Hi, everyone. I was hoping you could just give a bit more colour, firstly, on aviation volumes and your splits there. I'm noting you're down 57% year-on-year, and poll was pretty much similar, even though they've got a very high international bias. I was curious if you could talk a bit more about the splits of your aviation business between the various sub-segments of domestic, international, and how you see them improving over time as we recover and go out of restrictions.

Yeah, I think if I can go around, Dan, thanks for the question. I think it's obviously hard to compare exactly to their business because I don't know this work directly, but I think very much so we were fortunate that in the aviation sector at least we've had good exposure to regional markets and general aviation and that's certainly helped. We've had pretty good exposure to domestic and we think that will support us going forward where We're able to see a progressive recovery in domestic aviation volumes, but we have also had some exposure to international, and with the sort of market share that we've seen in our business in that space over time, it's natural that we have exposure to war segments. We don't publish the split between segments, but can say that we're, I think, expecting to benefit from some recovery in aviation over time, but likely that that will be a more gradual recovery than what we've seen, for example, in the retail space.

All right, thanks. And the second question, you very helpfully gave your budget for LNG, which LNG imports are in all capex, which seems about the right level. Do you care to give us, as a scenario, your early numbers you're working on for the import terminal alternative to Geelong refinery?

I'm sorry. I thought you were going to change the question.

What do you mean? Obviously, in assessing the fix of the refinery, you're looking at the alternative of convenience to an import terminal. Right. I guess the idea is, if you did that, what would the extra cost be to enhance Geelong's import possibilities?

If we stop refining and convert it? Yes. We haven't shared that number or, to be honest, done enough work to determine what that number would be. And that hasn't been the focus. Our focus has been on what's needed to see Geelong continue as a refinery. And so that's not something that we've actually contemplated at all. But... But we know from experience in conversion acquired that it's a few hundred million dollars to convert a refinery into an operating terminal. I think if we had to do that though, we would do that over a number of years. We wouldn't be doing that as a very concentrated period of work. We did that work between 2012 and 2018 when it was finally finished and if we had to take that pathway with Geelong it would be a similar exercise I think because Geelong can already import alongside refining as I mentioned before so we could import and we've done that before when we've had unit shutdowns etc so that can be done quite quickly and then it's the case of doing the work to over a longer period of time to convert. And the capital call on that would probably be very similar to the sort of capital call that you'd expect to see if we continue running it as a refinery. So, you know, quite manageable within our annual cash flow.

Okay, that's helpful. Thank you.

Your next question comes from Scott Ryle with Raymore Equity Research. Please go ahead.

Hi there. Thank you. The first one I have is a very quick one, hopefully. On page 24, slide 24, sorry, you make a statement that you continue to lead engagement with government on industry field securities package. Are you saying that you think you have been leading the engagement on behalf of all refineries? Is that what you're trying to get across there?

No, I'm not trying to get across that at all. I'm not trying to get across that at all, but I think we... We have certainly been driving it quite hard because we see it as very important for our future and being actively involved and providing some leadership in that area. And the reality is, of course, there's now two refineries that will be having those conversations, right? So in that respect, you could argue we are one of the leading companies.

Fair enough. Okay. No, no, I just wanted to check what you were trying to get across. And then the second one, maybe it'll take you a little longer to answer, is You've got the obvious issues around refining, fuel security, supply chain, strategic storage issues. You've had to manage COVID over the last 12 months, particularly being quite a Victorian-focused business. You've had a lot to do there. You've got the structural changes with respect to the other refineries shutting down and buy-sell arrangements and those sorts of things. and you've got your CRO retiring, do you have the management depth for everything that you've got on your plate at the moment? It's a pretty abnormal time. My way of asking, are you okay?

It's a fair question, and I think what you don't get to see is the depth of leadership that we have at the national level down in the company, and we have some very capable and strong managers leaders in what we call our senior leadership group that drives many parts of our business and obviously in the operations area that reports to TACE, some very, very capable leaders. So that's unchanged, that will continue and so I'm very confident with the changes that we're making and hopefully at some point we'll have the opportunity to run an investor strategy day as well and give an opportunity for some exposure to something that brought a group of people as well.

Great. Thank you. That's all I had.

Your next question comes from Anthony Labonios who says, what was the provision for bad debt for the year and how does it compare to last year? What was the impact on the bottom line results?

I can take that one. Thanks for your question Anthony. Yeah, we did quite a lot of work quite early to manage credit exposure and potential for bad debts and I'm quite proud of the work that the team has done both in finance and commercial business where we have the greatest exposures. In the context of our bad debt provision, it was low single million dollars, not too different from historical levels and we didn't experience any material bad debts throughout the period. But there was a lot of work and effort behind that and some pretty active management of credit across all areas of our business through the disruptions. And I think it was a real highlight in the way that was managed and the outcome that we achieved.

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

Yeah, look, thanks again for taking the time to join us today. I think we've covered it well in terms of the business performance for last year, but in terms of just summing up, I think if you can look through refining, which was clearly a challenging part of the business last year, I'm really proud of the way the rest of the business has performed to deliver strong sales performance despite reductions in demand, diesel sales growing, to see our premium penetration grow, to see us continue to roll out critical sites in our retail network despite the challenges of actually executing on the ground during the course of last year, turning in, I think, a very strong non-refining performance, showing earnings growth in that core part of our business. Those are all real highlights for me in terms of our performance in 2021. I think for refining we have a pathway forward and yes there's still some important decisions that need to be taken and some support outcomes so I'm pleased with the progress we're making and I can see a pathway to returning refining to a positive contribution in the short term and a meaningful part of our business in the long term supported by other projects that are along as well. I think we start the year in a really strong position. I think that we'll see that continuing in the early parts of this year with opportunity to benefit from further recovery from COVID-19 through the course of this year and so I think the outlook is good and look forward to delivering on that and turning in some results in the first half and through our quarterly update in April that will help to provide some evidence of that recovery. Thanks again for your support and thanks very much for joining today.

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