Viva Energy Group Limited

Thank you for standing by and welcome to the Viva Energy Australia full year 2021 results call. 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 Scott Wyatt, Chief Executive Officer. Please go ahead.

Good morning and thank you all for joining us today to discuss Beaver Energy's full year results for 2021, which of course follows the guidance that we provided in December. My name is Scott Wyatt, Chief Executive Officer of Beaver Energy, and on the call with me today is Dravan Buzo, our Chief Operating and Financial Officer, and Lachlan Pfeiffer, our Chief Business Development and Sustainability Officer. I would 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. I'd like to now turn to slide five of the presentation. Given the challenges arising from the pandemic, I'm delighted with the performance of the company during 2021 and with the results that we're reporting today. We've experienced strong growth across all parts of our business, including an 8% increase in retail fuel sales volumes, a 39% improvement in commercial earnings, and a strong return to profitability at Geelong Refinery during the fourth quarter. The federal government fuel security package has, of course, transformed the outlook for our refining business and provides a foundation to progress our broader vision for the energy hub. In this regard, we have made excellent progress on our proposed LNG terminal and received funding from the federal government to construct 90 million litres of diesel storage, which will commence this year. We have more plans for this part of our business and have also announced emissions reduction commitments as part of our broader energy transition strategy, which we shared with you in November last year. Overall, we have delivered a strong financial performance in 2021, made excellent progress on our strategic priorities, and we're well-placed to benefit from the broader market recovery in the year ahead. Our strong financial position has enabled us to complete a further $100 million capital return and an $18 million on-market buyback during 2021, and with the combined interim and final dividend, deliver a full-year, fully franked dividend of $115.5 million, or 7.3 cents per share. Turning to slide six, let me take a moment just to reflect on our safety performance. Last year, we recorded four high-potential process safety incidents, including three at Geelong Refinery and one at our fuel terminal in Sydney as a result of failure in customer equipment. There were minimal consequences from these incidents, and we have captured learnings which have informed our broader safety programs. Notwithstanding these incidents, I am really pleased with the continued reduction underlying loss of product containments, which of course are a key indicator of process safety risk. We invest heavily in our reliability programs to minimize the risk of these sorts of incidents, and this is a key driver of continuous long-term improvement in this area. Our total recordable injury frequency rate, which measures the number of injuries per million hours worked, was elevated compared to prior years. Higher levels of construction, maintenance, and operational activity across the business has contributed to an increase in musculoskeletal injuries, which forms the majority of these personal injuries. Our renewed focus on improving manual handling techniques and risk management and routine operational tasks has helped to reduce injury frequency in recent months, and this will remain a priority for the year ahead. Of course, I'm particularly proud of the way we continue to care for our employees and contractors, to minimise the impact of COVID on people and our operations. We have a very high level of voluntary vaccination across our work groups and minimal infection within the workplace. I'm very proud of the way we've maintained safe and reliable supply for our customers throughout the pandemic. Turning to sales performance on slide seven, I'm also very pleased with the recovery and share growth that we've seen in both retail and commercial during 2021. Throughout the pandemic, we have maintained a strong focus on core marketing businesses, with total petrol and diesel sales lifting by 8% and 14%, respectively. While jet share has declined slightly, this market continues to be heavily impacted by border closures, and recovery has, of course, been slower than expected. Turning to slide eight, we have seen a strong recovery in regional refining margins, driven by both actual and expected recovery in global oil demand. together with reductions in refining capacity from permanent closures and maintenance activity across the region. This continues into 2022. However, increases in crude premiums for the crudes processed at Geelong is having a dampening effect. Geelong production in 2021 was strong, with major maintenance deferred from 2020 now complete and a relatively quiet year ahead. Improvements in domestic demand have allowed Geelong to return to a more normal production and better optimise the production slate. Availability has been excellent at more than 94%. Turning to slide nine, I'd like to discuss now the progress we've made on our strategic priorities. As I mentioned before, the federal government's fuel security package materially transforms the outlook for our refining business. The fuel services security payment in particular underpins future earnings until 2028 to 2030. by providing direct financial support when margins fall below an agreed level. This reduces downside earning risk while maintaining the opportunity benefit from upside when refining margins are stronger, as we saw in quarter four. It provides confidence to invest in major upgrades to the refinery, which will improve the quality of our product and the reliability of the facility, and to progress our broader vision to transform the site into a modern energy hub. We have now completed front-end engineering design for the LNG project, and have progressed to the regulatory approval phase. I'm very pleased to have Woodside join with ONGI, Mitsui, VTOL, and VTTI as one of our partners, and that we've entered into a heads-up agreement with HERSH to provide the necessary floating storage regasification unit. We continue to explore the feasibility of establishing a hydrogen production and refilling site supported by behind-the-meter solar, and have received a grant from the federal government to establish 90 million litres of diesel storage, as I mentioned earlier. We are also expecting to receive up to $125 million of funding to upgrade the refinery to produce petrol to support lower emission fuels from 2025. We have also made commitments to reduce our own emissions and achieve net zero across our non-refining business by 2030 and across the whole group by 2050. In summary, we're very excited about the foundations we've laid in 2021 and the opportunities that lie ahead. Let me now hand over to Jovan to talk in a little bit more detail about our financial performance.

Thanks, Scott. I'll kick off on slide 11. 2021 has been a good year. Our EBITDA RC doubled to $484.2 million. After a challenging 2020, we set out a number of priorities as part of our pathway to recovery. Scott has already covered these in the earlier slides, and it's great to see a lot of these bearing out in our financial results for the year. We grew our retail fuels and marketing business by about 3% to EBITDA of $404.8 million, despite temporary impacts in retail. Refining EBITDA was positive $103.4 million after a large loss in 2020, reflecting both the introduction of the fuel security payments and a return to standalone profitability in the fourth quarter. Corporate costs were up marginally, and our underlying free cash flow was up $174 million to $261.1 million, supported by strong cash generation across all segments. Importantly, we resumed paying dividends during 2021 with a full-year dividend of $115.5 million, up $100 million from the prior year. On slide 12, we've set out the updated segmentation changes for the full year. Many of you will remember we made these changes at the half year to more clearly show the true underlying cash generation of the business. A short summary for the full year is set out on this slide. We allocated actual lease costs to each relevant segment rather than in depreciation and finance costs under the new accounting standards. As a result, our underlying EBITDA is referable to net debt excluding lease liabilities. We've allocated supply, corporate and overhead costs to provide better transparency of retail, fuels and marketing profitability with refinery related costs allocated directly to the refining segment. The wholesale business with sales to independently branded operators and regional businesses was moved from retail to commercial within the RFM segment. Finally, we've aligned the underlying NPAT with the previous definition of distributable NPAT. This removes the need for a separate distributable NPAT calculation, and dividends are now determined with respect to underlying NPAT RC, which relates more directly to the free cash flow of the business. A complete reconciliation between previous and current reporting is included in the appendix. Turning to slide 13, we've set out the group EBITDA waterfall. On this slide, I'll take a moment to talk to the performance of each of the segments, starting with retail. Sales volumes began to recover from the lows of 2020. However, due to lockdowns in our two biggest markets in the second half of 2021, we're still yet to see a full year of post-COVID impacts. The rising oil price tends to compress retail margins, and this had the greatest impact to retail earnings in the second half as well. Despite these temporary impacts, we continue to deliver our marketing plans, which have no doubt contributed to the improvements in market share that Scott covered earlier and will set us up well for a further recovery going forward. In commercial, I'm really proud of the significant improvement in underlying EBITDA. This came from a combination of sales growth, a disciplined approach to new business and contract rollovers, as well as strong management of our supply chain through a particularly uncertain period. We're yet to see a sustained recovery in aviation, and I look forward to this when border restrictions relax further. The refinery result was driven by a strong rebound of refining margins. However, this is a large figure due to the low lows of 2020. We received temporary production payments during periods of low refining margins throughout the year, with a return to profitability in the fourth quarter. Production levels were up, offsetting increases in freight and energy costs. Across each of the segments, including corporate, we allowed a bit of cost back into the business as we started to return to more normal levels of activity, at least for part of the year. Foreign exchange was a bit of a headwind and mostly affects refining margins, which are US dollar denominators. and the majority of the JobKeeper program did not carry into 2021. Overall, a great recovery in underlying EBITDA to $484.2 million, with further opportunity in a post-COVID environment in each of the segments. On slide 14, we've set out a breakdown of net cash flow for the year, which totalled $47.7 million. We managed to cash position well over the year, with working capital outflows mostly offset by inventory gains following increased oil prices. When adding back the one-off items and returns to shareholders, our underlying free cash flow was $261.1 million, a great result that highlights the strong cash generation of the business. Turning to slide 15, we have set out a capital expenditure profile. the underlying business capital expenditure for the year was $171 million and represents a return to an almost normal level of activity. You'll see from the bar chart on the left that a significant level of underlying business capital expenditure was deferred in 2020. And we expect to catch some of this up in 2022, along with an allowance for investment in a number of growth opportunities. We spent $14 million on energy hub projects and expect this to increase substantially in 2022 as we approach FID for a number of major projects, such as the strategic storage, ultra-low sulfur gasoline upgrade, and the LNG terminal. Overall, we provide guidance of $230 million to $240 million of underlying business capital expenditure along with energy hub projects expected to cost $100 to $110 million. I'm pleased that we have a strong balance sheet to manage this, which I'll cover in a couple of slides. On slide 16, we've set out the final dividend position for 2021. Splitting out our dividends, as we do now, the board has determined a payout ratio of 60% for retail fuels and marketing NPAC, of $65.2 million in the second half, delivering a fully franked dividend of 2.5 cents per share for the six months ending 31 December 2021. We assessed the full year performance of the refinery, particularly the return to profitability without temporary production payments or fuel security payments in the fourth quarter, and the board determined a dividend of 60% of NPAT was appropriate The refining dividend is assessed annually and equates to a fully franked dividend of 0.7 cents per share for the year. The combined total second half dividend is 3.2 cents per share, which will be payable to registered shareholders on the record date of 8 March 2022. Turning to slide 17, we've set out our strong balance sheet position. In line with our capital management framework, we returned $183 million to shareholders during the year, including $66 million in the first half dividend, a capital return of $100 million, and $18 million of the $40 million on market buyback. After returning $118 million to shareholders, we ended the year with net debt of $95.2 million, a little better than where we started at the beginning of the year. We have an ambitious capital program ahead of us and have set a target to add more than $50 million of new earnings. Our balance sheet remains strong and has plenty of capacity to support this. I'd now like to hand back to Scott to cover the outlook and priorities for 2022.