Viva Energy Group Limited

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

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

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