Viva Energy Group Limited

Thank you for standing by and welcome to the Viva Energy Australia full year 2022 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 via the phone you will need to press the star key followed by the number 1 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 for joining us today to discuss Viva Energy's full year 2022 results. My name is Scott Wyatt, Chief Executive Officer of Viva Energy and today I'm joined by Carolyn Pettick who recently joined Viva Energy in January as Chief Financial Officer, Jovan Bruzzo, Chief Executive of Convenience Mobility and Lachlan Fry for Chief Business Development and Sustainability Officer. I 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. As we announced near the end of last year, we've made several executive leadership changes to support our growth and transformation agenda, which I set out on slide five. I'm delighted to welcome Carolyn as our new Chief Financial Officer. She has over 20 years' experience in finance and risk management roles across energy and mining and is an excellent addition to our team. Jevon, as you know well, has been appointed Chief Executive of Convenience and Mobility. He has been an outstanding Chief Financial and Operating Officer and will bring a deep knowledge of our business markets and strategic agenda to this important new role, driving our evolving convenience and mobility business. As always, I'd like to begin with some comments on our safety and environmental performance set out in slide six. Although we are seeing some continued improvements in personal safety performance, our injury frequency rate does remain elevated compared with historical levels, and we're certainly focused on improving this further in 2023. Higher levels of construction, maintenance and operational activity are a factor, with the majority of injuries consisting of slip strips and musculoskeletal injuries. In terms of process safety, loss of primary containment above 100kg remains in line with prior years. with five classified as API Tier 1 and 2 incidents due to the quantity or rate of release. By way of example, one of these more significant incidents was the result of a road tanker being overfilled by a driver at our terminal in Cairns. Notwithstanding these headline results, we continue to invest in our integrity programs and we are seeing continued improvement in early identification of potential leaks. While there is always room for improvement, I remain pleased with the focus on safety across the whole company. According to slide 7, let me touch on some of the key highlights from 2022, which was clearly a remarkable year for Viva Energy. In the face of significant disruption to international energy markets, each of our three businesses performed extremely well. Retailing commercial both grew sales and earnings, with EBITDA up 33% and 54% respectively, and refining turned in one of our best years ever, validating our decision to maintain refining capability despite the challenges of the last few years. Total Group EBITDA was a record $1.1 billion. The company finished the year in a net cash position of $291 million, supporting a fully fined dividend of 27 cents per share. Carolyn will talk more about our financial performance shortly, but let me acknowledge the significant effort from everyone in Viva Energy to maintain reliable energy supplies throughout these difficult times, and at the same time turning in such exceptional results and maintaining good progress on our strategic agenda. On that point, I'm particularly excited about the potential for our retail business following the acquisition of Coles Express, which was announced in September last year. The fast-moving convenience market presents considerable opportunities to grow our business, and we are looking forward to completing the transaction during the second quarter of this year. At our energy hub in Geelong, we commenced construction of 90 million metres of diesel storage and took FID on our pilot Heisden refuelling station, which we hope will be the first in the Plains network along the east coast. We await state government approval before advancing our gas terminal project and are well advanced on preparing for upgrades to produce low-salt perpetual in 2025. Fuel sales, as set out on slide 8, are up 9% on the prior year. At 14.3 billion litres, they are now back to 96% of pre-pandemic levels. The commercial business grew sales by 9%, benefiting from a recovery in air travel, the return of the cruise industry, and strong demand from the wholesale and agricultural segments. Retail sales volumes increased by 7%, led by the more regionally focused dealer-owned and Liberty convenience networks. Though Alliance fuel sales continue to be affected by reduced mobility in our capital cities, sales were up 3% on 2021, and we saw some encouraging growth during December with a number of weeks around 65 million litres. Slide 9 sets out fuel sales performance by grade for Viva Energy and the market more generally. There has been a strong recovery in jet fuel demand during 2022 and diesel demand has remained strong with consistent growth, reflecting the performance of the broader economy. Viva Energy has generally outperformed the market with the exception of aviation, which reflects our more cautious approach to contracting fuels in the face of elevated premium and freight rates. Our refining business has of course benefited from extremely strong regional and global refining margins, as set out on slide 10. The main drivers have been the recovery in oil demand, coupled with reduced refining capacity as a result of closures and delayed projects. Oil sanctions and demand recovery, particularly from China, continue to have a significant influence on the refining environment, particularly with respect to middle-district cracks and crude premia. We expect the year ahead to remain volatile but overall constructive for refining. Let me now introduce Carolyn Peddick who will talk in more detail about our financial performance.

Thanks Scott and good morning everyone. It certainly is a remarkable time to join the business and a pleasure to be able to share our results with you this month. So let's start on slide 12. So 2022 was an exceptional year for the company across all parts of Viva Energy. As you can see, EBITDA is more than double what we achieved in 2021, and we've seen good improvements in both retail and commercial, alongside the uplift in our refining business. Underlying free cash flow increased by $506 million, and our balance sheet strengthens further to net cash of $291 million at the end of last year. Given this record performance and robust financial position, we are pleased to announce the final dividend of $13.3 per share. and this represents a 70% payout ratio, which is at the top end of our range. Now, our retail performance, as set out on slide 13, is driven by a steady recovery in fuel sales and improved margins across all channels. This reflects an improved retail margin environment, purchasing and supply benefits, and tactical pricing strategies deployed across our markets. Our investment in marketing and brand sponsorship was increased in 2022, to support the expected improvements in mobilities as markets opened up. Increased operating costs reflects the usual annual increase in rents and people-related costs, with some leases and operating expenses reflecting impacts of higher CPI. There are also a couple of small run-offs impacting the result, which we called out in the first half. So, overall, EBITDA was up 33% on 2021 to $249.6 million. So on the commercial business, as set out on slide 14, we also benefited from a general sales recovery during 2022. Together with growth from new customers and improved margins from both contracted and uncontracted sales, overall EBITDA was up 54% to $335 million. This delivered commercial second consecutive year of growth since the peak of the pandemic and a record result. Short-term trading and supply chain benefits were about $10 million, reflecting purchasing and supply agreements, which smoothed the impact of rising product premium experienced during 2022. And commercial also benefited from short-term spot opportunities, which resulted from periods of tight supply in the market, with Viva Energy valued as a safe pair of hands at times of uncertain supply. The majority of these benefits are unlikely to repeat in 2023. As Scott indicated earlier, refining benefited from a significant improvement in refining margins, up $10 per barrel over 2021, as you can see on slide 15. Higher energy and shipping costs provided some headwinds, and the unplanned outage from the cracker unit in August also impacted both margin and operation costs. Overall, relative to prior years, the refining performance was outstanding. with higher margins and strong production contributing to an EBITDA of $518 million. Now, moving to slide 16, as set out here, we delivered a net cash flow of $194 million in 2022. So our underlying free cash flow before borrowing, dividends and investments was $767 million. This excellent result reflects strong operation performance in each part of our business. as well as diligent management of our exposures during the period of heightened volatility. Now, turning to slide 17, we've set out our capital expenditure in 2022 and guidance for this year in 2023. So, last year, we invested $278 million across the business, net of government contributions. This is in line with the lower guidance we put up in the first half. with lower federal government contributions reflecting slight delays on project timing milestones. And in this year, in 2023, we're guiding CAPEX at between $405 million and $455 million net of government contributions. So this includes $290 million to $310 million of investment in our core business, comprising upgrades and optimisations to our convenience and mobility business, improvements in our supply chains, and the major maintenance of our primary distillation and associated units in the second quarter. In addition, we're guiding to between $190 million and $210 million of investment in energy hub projects, which includes strategic storage and upgrades to produce low sulfur petrol. Between $65 million and $75 million is expected from the federal government in support of these projects. Now, moving to slide 18, this shows our balance sheet position. After starting in 2022 at net debt of $95 million, we moved to net cash of almost $291 million at the end of the period. As you will recall, in the first half, we brought forward the assessment of refining earnings to reflect its extraordinary performance in that period. This formed a large part of the $213 million dividend that was paid in the second half. The final dividend announced today is at the top end of our policy to reflect an exceptional year and will see us pay out $206 million in the first half of 2023. In addition, we expect to complete the acquisition of the Coles Express convenience retailing business in the second quarter. Now, as we highlighted in September, the net impact of the purchase is expected to be $143 million once working capital benefits and the settlement of the payable are taken into account. Our robust balance sheet puts us in a strong position to fund these outlays along with our ambitious capital expenditure program in 2023 and also our long-term strategic growth agenda. In addition, a reminder that $17 million of our on-market buyback remains active. Now, moving to slide 19, I'll talk about our decision on the dividend in more detail. So as we've said, we've announced today a final fully-frunked dividend that's 13.3 cents per share, and this represents a 70% payout ratio for the full year, which is at the top end of our dividend policy range, reflecting what's been an exceptional year across all parts of the business. And this equates to a second-half payout ratio of 85%, taking the full-year dividend to 27 cents per share. The total dividend will be payable to registered shareholders on a record date of the 8th of March 2023 with a payment date of the 24th of March 2023. So this year, in 2023, we intend to return to our policy of assessing dividends from our refining business at the end of the financial year with our interim dividend only reflecting earnings from the retail, fuels and marketing businesses. On that note, I'd now like to hand back to Scott to cover our strategic updates and outlook from slide 21.