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.

Thanks, Carolyn. Looking forward to this year, we expect trading conditions to remain generally supportive for each of our businesses, recognising that we are coming off a particularly strong year in 2022. We expect retail demand will remain robust despite the lasting effects from hybrid working and mobility changes. Once the acquisition of Pulse Express is completed, we look forward to pursuing strategies to maximise the convenience opportunity and will continue to close gaps in regional areas by further extending the Liberty Convenience Network. In commercial, we expect a largely resilient domestic economy and continued demand for travel to be supportive of sales volumes. Though quality premium and freight remain elevated and we benefited from some one-off opportunities in 2022, we expect the diversity of our segments and contract arrangements to provide some internal earnings protection. We expect refining margins will remain elevated, with the GRM in January averaging $17 a barrel. but volatile, driven by disruptions to global supply chains and the recovery in China. As Carolyn mentioned, there is a major turnaround work in the first half that will reduce intake to around 37 million barrels for the year. Lastly, planning and development is well underway for several projects at the Geelong Energy Hub. The strategic diesel storage and ultra-low sulfur gasoline will comprise the bulk of their power investments this year, but we hope to also begin construction on the Green Heights and refuelling station and are exploring co-processing opportunities to produce lower carbon fuels, which we believe can play an important role in the long-term energy transition. We continue to believe that our proposed gas terminal can play an important role in meeting the projected gas shortfall in Victoria and the broader South East markets. We await regulatory approval and clarity on the implications from the recent gas market intervention before we can provide timing on a final investment decision. Overall, I expect Beaver Energy to be well placed to navigate any further period of uncertainty and volatility during 2023 and continue to pursue our strategic objectives. Turning to our long-term strategy on slide 22, you can see how our transition and growth agenda has evolved since we shared it with the market at our investor day in 2021. Since then, we've delivered on a number of fronts. We have outperformed in our core businesses by leveraging our competitive strengths. and have started developing lower carbon pathways for each of our three businesses. Retail will soon transition to a leading convenience and mobility business with the largest network in Australia under a single operator. We see potential to increase exposure to this fast-growing market and unlock synergies from integrated network and store development. This will put us in a good position to fully acquire the Liberty convenience business at the start of 2025. Our commercial business provides a range of energy and industrial solutions. We expect our specialty businesses will comprise a larger part of earnings base going forward and that we can scale this through targeted acquisitions such as what we achieved with the Polymers business last year. We can add value and see synergies in areas that have sophisticated procurement processes, complex supply chains and a diverse set of customers. And thirdly, we seek to optimise the advances of our refinery and infrastructure positions. Beyond the DeLong Energy Hub, we have a privileged position in Australia to transport and supply both existing and lower carbon fuels through our extensive import, storage and distribution network. Each of these three businesses have their own distinct pathways to unlock sustainable growth. And on that note, let me please open for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your first question, it comes from Dale Gounders from Baron Joey. Please go ahead.

Morning, guys. Just firstly on your CapEx guidance, I was wondering if you could provide a little bit more colour. How much of this is growth CapEx versus considered sustaining CapEx? And then for the growth CapEx portion, what earnings uplift is this delivering?

Sure. But I think the important thing to note because obviously this year is a higher capital year and that's driven heavily by the projects that we have in Geelong and that's primarily the construction strategic storage which is already underway and we begin to obviously spend more heavily on the low sulphur gasoline upgrade project this year as well. Now, that really drives the majority of the uplift. Within the core business, we continue, obviously, to invest in integrity programs and the normal base capital that you'd expect us to do. But as we acquire the College Express business and get full control over the retail network, we are at a much better place to start investing a bit more heavily in the retail business, particularly after... the last two or three years, which obviously has been constrained through the conditions that existed through the pandemic. So I think that will increasingly be a feature of our forward capital spend. And in terms of earnings uplift, it's consistent with the guidance we gave on the acquisition of the Coles Express business and our general desire to deliver an additional $50 million of non-traditional earnings as we go forward and extend our business into new areas

So how much of that $50 million uplift is delivered from this CapEx guidance?

I think that the earnings uplift that we indicated was over a multi-year period and this capital for this year is sort of part of that multi-year program so it's not really relevant to sort of break it down into a single year. So you need to think about it over that timeframe.

I guess this is very hard to understand, you know, the attraction of this capex versus returning more capital to shareholders and understanding what returns you're actually making on this money. So maybe... Sorry. Sorry, go. No, you carry on. I was just going to say that maybe on capital... returns and the question of you're obviously under-keyed on your balance sheet and sort of there's a signal of further M&A. How should we think about sort of like a minimum gearing that you're willing to carry through the company on an ongoing basis while you sort of sit there waiting for the right acquisition rather than any acquisition?

Yeah, look, I can take that one, Scott. I mean, we're still sticking with our stated target gearing ratio and that's certainly what we're looking towards. I know that we're not anywhere near that at this point. I guess your question was in the absence of M&A. You'll see that we've got a fairly standard CapEx program coming up and we'll be completing on Coles Express and paying out a higher dividend. I wouldn't be expecting to be seeing us in this same net cash position going forward, but without commenting specifically on M&A, we still are targeting that gearing ratio going forward.

Okay. Thanks.

Thank you. Your next question comes from Michael Simotas from Jefferies. Please go ahead.

Good morning, guys. The first one for me is on the aviation market. I mean, your competitor had a bit to say about it yesterday and seems to be trying to pass through quality premium to customers. Are you seeing any let up in the competitive intensity in that segment? And is there an opportunity to regain some of the share that you've lost as that does settle through?

Yeah, thanks, Michael. Thanks for the question. I think we've obviously been living throughout the course of last year for an elevated environment around premiums and freight, and we've certainly been active throughout last year in passing that on to both spot and contracted customers, not just in aviation but in all segments because of some material cost uplift and And our success in doing that is reflected very much in the commercial results that we've released today for the year. So, I think you can take from that that we've been quite successful in that regard. So, it's not a new agenda for us. It's one that's been already in play and we'll continue to work on that because, obviously, it's an elevated environment and it's a material cost that needs to be passed on. It also reflects a little bit the market share in JET that we're seeing a little bit, you In being more robust and critical that the contracts will take on and passing on those costs, it does mean that we have not necessarily renewed as much as we might already do, but we think that's the right balance to strike in this current environment.

Okay, thank you. And then just moving on to refining, a couple of quick ones there. OPEX per barrel was very high in the second half and obviously the unplanned outage had an impact on that. Can you give us a sense of what underlying change in cost per barrel would have been across the period if not for the outage and then just another one on the impact of the CDU turnaround You've given us the volume impact. Historically, there hasn't been much of an impact on marginal costs, but we're in quite a different refining environment now, so I just want to make sure that that's still the case.

Sure. Maybe I can just talk a little bit about the cost increases which we draw out in slide 15 and maybe, hands to Carol, to pick up any other points that need to be covered. I think obviously in respect of energy, we've lived through a pretty elevated environment through the middle of last year particularly. We have always had an approach to energy that carries a level of spot exposure to that and that obviously drove the majority of that increase in energy costs. The outage also drove some of that energy cost uplift as well because we consume more energy when we're not running the cracker so there's a bit of the outage in that result also. Obviously with the intervention in respect of our operating business that is helping and we're obviously seeing a restoration to more normal historical levels in respect of energy as we've this year and obviously we've still got to get through winter so there's still the risk that we see higher costs during the winter but certainly the intervention will no doubt help to some extent. So that's the flavour around energy. Shipping is a combination of, there's an element of structural shipping that we have in terms of markets that we service regularly out of Geelong, there's markets that we select to service outage along when the margin environment supports increased production and shipping rate out of there and then there was the impact of the outage within shipping as well because during the outage of the cracker there was the need to obviously store residue that the cracker would normally process which resulted in increased demurrage costs. So it's a combination of those three things and particularly elevated due to the higher freight rates that we've seen throughout last year and continue to see this year now. There's an offset for that because those higher freight rates also support the refining margins and obviously the motivation to export more production edge along is also driven by the refining margins. So there's a little bit of a correlation to the margin part of this waterfall as well and it's a little bit variable in that context. What I'm trying to say is we can tolerate higher shipping costs when the margin environment is high and it'll be lower when the margin environment is lower as well, so it's a bit variable. And then manufacturing costs obviously impacted by the outage. We had to incur additional costs to repair the crackers through the period of the outage and restore it and there's a little bit of catch-up work that we've done there on some of our integrity programs as well that has driven that. I think that hopefully gives you a bit of flavour, Michael, for the... That's really helpful.

And then just on the CDU turnaround as well.

Thanks. Yes, CDU turnaround is primarily a crude intake impact, so that's why we call out the reduction in production in crude intake. That's probably the best way to think about it. That's the major impact. And obviously the other impact is just the capital associated with that turnaround, which we also called out as well.

Great. Thank you.

Thank you. Your next question comes from Mark Sanders from NST Marquee. Please go ahead.

Yeah, morning, guys. I might follow on from Michael's question a bit on that refining cost and try and push us towards a bit more of a definitive guidance. I mean, I guess if we look in absolute dollar terms, FY18 to FY21, those costs were pretty stable. I mean, in annualised second half numbers, double what they were. I guess, can you give us a feel for what underlying costs is versus that three or four years? And I guess a follow-on question to that, if we are dealing with materially hard costs, not that many years away from when you've got the production on extending the government support package which I know feels deeply relevant at the moment but refining will do what refining does and certainly at the cost space through 2022 the government support wouldn't sustain profitability within the refinery. Can we talk about it in that context as well?

I might hand over to Carolyn to give her an opportunity to talk to it, and I might come back on the last point around the government package.

Yeah, no worries. And thanks, Mark, for the question. And I think just a general comment, it's important that we don't bake these costs in going forward into 23. I know Scott talked about that in some detail, and Mark, you were, I guess, referring to the cost base going forward and comparing it to 22. And, I mean... without being too precise, you could probably take a rule of thumb and go halfway between the costing FY22 and 21 and that would give you a good view going forward as a rule of thumb, I'd say.

Thank you. I think, Mark, probably it's good to join up on the government package because there is a review point in the middle of this year that will be which was foreshadowed when we struck the deal, sort of part of the government process to review the work uses of the package. I think a number of things have moved on since then, have changed since then. obviously it's an opportunity to sit down with government and review those. So some of those might be in respect of just the structural costs of running the business, might be costs that potentially we incur going forward, such as the impact of the safeguard mechanism. So there's a few things that we need to reassess, and I think it's actually quite timely and a good opportunity to do that with government in the middle of this year. But I think, you know, a lot of these, as Carolyn said, I think the most, we don't accept necessarily that all these costs, changes that were set out in the bridge become structural. And I think, as I discussed a bit earlier on, I think there's a number that are quite unique to the period and are almost variable in nature. So I don't think it would be correct to just assume that that's just suddenly a structural cost imposed on this particular part of the business.

I might just follow up a quick question following on from Dale. I mean, to start the question would be there is still some of the buyback I think still left to do, but can we think about I get the message that there's M&A out there and you can't control the timing of M&A, but unless you're buying a business that's half the size of your business with no earnings, which I certainly suspect you're not, you're still going to have balance sheet capacity left after that. I guess Why wait? Because we have been waiting so long for M&A that hasn't really come. Why wait for any other form of capital management to see how those drop out? And can we talk about what you think the preferred method of capital management is? Is there scope for more buybacks? Do we think Zotel might participate in those when we do eventually get to the point where you buy back more stocks?

Karen, why don't you... I'll come back to it when you kick off.

Yeah, yeah. Yeah, I can absolutely kick off. And, yeah, I appreciate the comment on the M&A and acknowledgement of not being able to control the timing, and that's all true. And I think it's just important not to lose sight of the fact that we really do need to focus on value-accretive M&A because I'm sure you'd all agree that the worst thing... value-accretive M&A, waiting for it will be value-disruptive M&A. So we do remain focused on that. I appreciate that we've been saying that for some time, but that does remain an absolute focus. I guess in terms of capital returns over time, again, without wanting to pre-empt what we'd be talking about going forward, we still have a really good dividend policy in place, which continues to make a lot of sense. and enables us to pay out, you know, a strong dividend, as we've shown in years of outperformance, so that remains at our hands. Yeah, and as you said, I guess buybacks do have some particular challenges with us, so we need to be a bit careful around that.

But I think, Mark, you are. I mean, we're aligned to the fact we've got a strong balance sheet with a lot of firepower to execute on the strategy that we set out in 2021. So it's ready to fulfill on that, which, you know, obviously... a recap was really building a fully integrated convenience business, extending our commercial and the business to really become a broader commercial industrial business and obviously investing in some of the energy projects that are probably more known to people that will require capital and either directly in terms of investments we make or acquisition. So we're very alive to that. that we need to consider, act on that. Obviously, I think you and others would want us to be acting in a disciplined way and finding the right value-accreted project opportunities, and that takes time. But we want to... We've made some early steps which have been important, and the acquisition of Colt Express is a good example. But we need to do more, and we can be certainly keen to get on with that much. Thank you.

Thank you. Your next question comes from Gordon Ramsey from RBC Capital Markets. Please go ahead.

Well, thank you very much, and good retail fuels and marketing results. Just in that area, there's been previous comments about getting weekly fuel sales up to 65 to 70 megaliters a week after completion of the Cold Express transaction. You said today you had a number of weeks above 65. Can you give us a feel on what the timing might be for that?

Thanks for the question. It's a great one for our new CEO with convenience and mobility. I think we're pretty focused on trying to improve the share in that part of our business. I think we get a lot of new opportunity and levers once we're able to integrate the Coles Express business into our Beaver Retail organisation and we'll have the opportunity to market and think about promotions, price positioning across both fuel and shop to really drive towards that target. At the moment, we're targeting completion in the second quarter of the year, so the period ended 30 June. as we've said in the release, and I think there's a little bit we can continue to do leading up to that point on price perception and our market share generally to see some improvement in the volume levels. I think we're tracking pretty well in line with market at the moment and really looking towards that sort of stated range later in the year. So definitely something that I think is in sight and something that we're focused on achieving in a sensible and balanced way through the course of the year.

Thanks, but no timing given. So even though you've had a number of weeks at 65, it could be a year away or two years away.

You're not going to comment on that? I hope it's not three years away. We've got a fair bit of work to do this year and I think we're certainly heading in the right direction. We'll be a little bit dependent on the way market tracks in terms of their return to mobility and people travelling around and increasing activity on roads, but we're starting to see a little bit more of that at the moment, so I'm hopeful that we're heading in the right direction.

Okay, thank you. And just one other kind of area, just on the refining side of the business. Your competitors said they were kind of holding off on the FIG and the refinery upgrade because of concerns about government policy on aromatics. Is that an issue for Viva and the Geelong refinery?

Well, I mean, we're, like others, we're still waiting to hear on the outcome of the review around any further changes to fuel specifications, and obviously the key one from a refining perspective is aromatics. So that's It's still in play with government. It's not holding us back on the upgrade to the low sulphur petrol, that project as well, and it'll be, you know, there may be some work, there'll be work required to meet, if there are changes to the fuel specifications, there may well be more work that is required, but that, at this point, obviously is unknown, so we're waiting. It doesn't impact the main project.

Okay, lastly, Scott, you made a comment about specialties being a larger part of the business going forward. And you mentioned the Viva Polymer business. What could that include? I mean, what are specialties? Is it all petrochemicals or is it other products as well?

I think just ask Lachlan to have a chat around the polymers business and why we bought that and opportunities we see. and to give you a bit of flavour of the sorts of opportunities we're looking forward in commercial.

Thank you.

Yep. Thanks for the question. So just to roll back a little bit to the poem of acquisition, that business has always been a facility that has been attached to the refinery and has been there for many years and and took feedstock both from ourselves and our traders and so our kind of closing was a logical alignment between our business and it with regards to being effectively the sole supplier of feedstock to that. I think what that does is obviously gives us a new arm to our commercial business and puts us in the polypropylene market and quite a strong position in that polypropylene market. and exposes us to a whole new range of commercial customers in that segment. It also opens up, I guess, some interesting opportunities on co-processing at Geelong. um the circular economy and the recycling of plastics is obviously a very live issue in the community and this government at the moment um you might have seen we've done previously a trial with regards to recycling of some uh effectively what is plastic pyrolysis oils um through the refinery that's something we did 18 months ago and that was successful and so it now opens up that opportunity considering we own that whole supply chain to look to those feedstocks and start to develop that processing capability patch along and really start to talk about what sort of role the refinery can play in the longer term as well as being what it will always be which is a significant on an energy security basis, particularly for the South East Australian states, start to play a role in producing circular economy outcomes and lower carbon fields over time.

Thank you.

Thank you. Your next question comes from Daniel Butcher from CLSA. Please go ahead.

Oh, hi, everyone. First one's just for Jovan. You've got this cold express acquisition in your account. It looks like there's a lot of room for margin improvements. Once again, if you look at the cross-payment releases and fuel margin, the cold express and yourself. Let's just be sure that you can give us a rough guide as to what sort of short margin contribution improvement you see over one, three or five years.

And maybe a rough indication of how much capital will be required to work those shocks over and make them perform better. Thanks.

Thanks Dan. Good question. I think there's probably a couple of elements to that. It's a bit early to say how we run those stores and how the margin performs. I think we rightly point out that Coles Express has been very much a value proposition over time and a big part of our thesis and business case is to really grow and evolve that convenience offer. well in shop and some of those are in our network and stores that are able to cover almost all of their costs from contributions from the convenience store and I think there's a real focus and opportunity for us to continue to grow and develop that in our network. We have the whole business in a few months time as we've shape stuff and how that looks over time, whether there's a material margin opportunity there or not and how we decide to take that forward I think I'll save until post completion and obviously you'll start to see those results come through our numbers and so I'll refrain from giving you any guidance on that at the moment but I think that does represent a good opportunity for us to reshape and evolve that and a pretty broad opportunity right across the network in that space. Okay, well, maybe we can just try a slightly different angle. I mean, the number of stores and equipment that you're acquiring, you know, sort of compared to spending, you know, $500,000 or $1 million on a shop renovation, I mean, should we be taking those sorts of numbers, multiple number of stores, to get the maximum amount of capital you might spend on refreshing those stores, or would it be a small proportion of that? Yeah, I think the network's performing pretty well at the moment. Returns are quite strong. And so, basically, you know, when we talked about the earnings contribution of $45 million to $70 million in the relief late last year, that was excluding any synergy or future uplift. And that was really driven by holding the business in and continuing the good momentum that we've got at the moment. I certainly think there will be opportunities to invest and uplift the core network. basis and they will be driven by an uplift in store sales, profitability and contribution and so will ultimately be self-funding in Africa. But I take your point. I mean, a full re-fit of a store can cost up to $1 million. At the same time, our life touch rebrands and a bit of a refresh can be significantly less and over the past couple of years, in conjunction with goals we've spent up to about $10 million, already refreshing stores and improving some of the network, at least a couple of hundred sites or so, and seeing some meaningful sales uplift as a result. So I certainly expect to continue that program. And our CAPEX guidance that you see incorporates an expectation of the Coles Express business coming in during the year and a small lift in retail CAPEX to reflect that. But we will continue to keep you updated as we develop further plans and that's Okay, thanks. Maybe just one quick one on the LNG import terminal. In your discussions and submissions to the government about your two cents worth, is there any possibility that the price cap long-term not applies to import terminals?

Is it an extra source of supply outside the local production regime, or is that not on the cards?

You just broke up a little bit. Was the question, is the price cap not going to apply to imports? Yeah, I'll address the question. Is there any discussion with government as to that possibility at this stage? Yeah, it's something that is effectively on the first round of the legislation that we saw that wasn't exactly clear, to be honest, with regards to how imports were to be treated. And I think that's simply a factor because there isn't currently imports that wasn't addressed in the initial phase of engagement on that. I mean, I think it's obviously an important question. We are in discussions and have made our own submissions with regards to government on it. Obviously, the way anything like that would need to be dealt with with imports would probably at least need to be different because the sort of copter production basis for reasonable pricing wouldn't make sense for international LNG flows. So I think it does need to be treated differently and we're working through that with government. Okay, thank you.

And maybe if I'm very quick, if I can, just this one, 514, I'm calling it spot sales for the commercial business. Can you explain what the dynamic is there and why you're making that extra margin on spot sales? That's it, is that familiar?

Yeah, sure. So within the commercial business, we have a wholesale business that sells to... non-spot basis to customers and resellers if you like of bills and that part of business performed particularly well last year both in terms of sales but also in terms of earnings and it's reflected a very tight market and difficulty for those sort of customers to get reliable supply and we were able to service that market and I guess a combination of just our and whether what we're able to extract from the market delivered that improves as well.

Would you expect that to be a participant in terms of 23 given current conditions or that something might... No, we call that out.

We call that out as something that we'll claw back, we think, during... Oh, sorry, I'll understand. Yeah, no, but during the course of this year, we expect that to... Yeah, I mean... Time conditions exist again this year, and that's obviously unfair, but I feel that is probably more of a one-off.

Okay. Thanks for calling me. Thanks, guys. Thank you.

Thank you. Your next question comes from Mark Wiseman from Macquarie Group. Please go ahead.

Hi. G'day, Scott and team. Thanks for the update today, and well done on the dividend. Just two questions from me. Firstly, on slide 13, in the retail business, quite impressive margin expansion above what the AIP margins have done. I was just wondering if you can elaborate a little bit more on the procurement benefits and the tactical pricing. Are there any examples you can give or core strategies there that we should be thinking about that could repeat in 2023?

I can probably take that one Mark. Thanks for the question. Yeah, I mean, I think the AIP margins are generally helpful directionally. It's important to remember that those are a simple average across all market relative to terminal gate price and so each player in the market will have their own actual cost base and obviously a weighted average based on the volume they sell across the network and across the markets in which they operate. I really think we've performed broadly in line with market. I think we've worked pretty hard to optimise our pricing from a tactical perspective across markets and within geographies. And the team worked that pretty hard to try and drive both a volume and margin outcome that's balanced and sensible. So the team continues to do that. There's probably no specific examples that I'm going to at this stage because it's obviously different by market and can get a little bit detailed. But certainly trying to track that volume and margins so that we can see some of the earnings uplift that we're obviously targeting as we continue to see recovery in market.

Okay, great. And just finally for me, just on the Liberty transaction, I think you mentioned Scott that that would be, it sounded like early 2025 that you would be doing that buyout. It's a little hard to see from the equity accounting but back of the envelope it sort of looks like those are doing roughly half the profitability of the existing company controlled sites. I guess are you able to give any comments just on when those consolidated earnings come through and how we should contextualize that relative to the $50 million of EBITDA up list?

I can probably talk to that as well Mark if you like. One, we obviously don't show the full integrated profitability of the Cold Express business yet. And two, Liberty Convenience is carrying a higher overhead to support the new store rollout that it's been embarking on. And so if you think back to some previous presentations, we talked about their ambitions to get to as many as up to 150 sites, moving up to that. completion time or opportunity for us to buy the business out at the beginning of 2025. So there's certainly a level of cost in that business that would not necessarily carry forward if you were to fold those sites into the existing network and think about the expansion a little bit differently. That plays a little bit in their earnings performance that we equity account and as you rightly point out at the moment, we only collect 50% of their NPAT which carries all that additional overhead. They're quite different sites and there's a mix of sites across the network. Some metro but mostly regional and some quite different large format sites that have a wider convenience offer that I think will benefit from folding into our broader network and when you factor some of those I think there's a number of sites in there that have quite impressive profitability and some that are more traditional and Once we fold those into the broader business without the overhead, I expect that they'll contribute a similar amount to the existing size that we've got in the company-controlled business. But again, you won't necessarily see that through our earnings until 2025, post-fire.

Okay, that's great. Thank you.

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

Morning, sir. Just probably following on to Jovan, I've been listening to all the answers on the Retail Alliance sales and commenting on 58 million litres a week and you did 65 and, you know, obviously in weeks or bits and pieces of December. Covering coals, you know, basically between 62 and 65 million litres a week is the barest minimum. It's the break-even. It's probably even a bit higher now. I'm just trying to get my head around... you've got to get these up to around 70, 75. Is that now unachievable? And what is it? Is it recovery in the market that you're claiming that you need, or is it actually recovery in the performance of the business because it's been held back by cold? Can you give a bit of an overview? I'm trying to get my head around, you know, what is going to take this business to get back to where it should be? And that's really up to around that, not 60, 65, because that's not even... not even where you need to be to break in. You need to get it back to that 70 level. So we don't want you setting low targets here, Jovan, in your new job. I want you setting realistic ones. And I would have thought, Scott, you'd want him to do 70 to be better at the minimum of acceptability here.

Thanks, David. Thanks for the push. Yeah, no, I think we need to... I agree we want to get the business back up in the mid-60s. I think that's entirely achievable. I think beyond that, as I've said before, will really depend on where the retail market steadies out. As you can see on the slides from the pack, the total market for gasoline at least is still down 10%. So there's a bit of recovery still to go there to get back to everywhere pre-COVID when we sort of hit that ambition. I think your commentary on breakeven probably more affects the model that we've got with Poles at the moment and their position. Obviously, that all changes when we fully integrate the business. So the breakeven costs of running the network is quite different under an integrated model. So we probably need to think about it a bit differently. But I think we also need to think about the cost. you know, the returns on this part of the business in the context of convenience as well, which is obviously the part that we want to really invest in and grow further as well so that we're not completely dependent on restoring fuel sales within that network. The only other thing I would say before I hand over to Jumanji to respond on his targets, as you put it, is that we have... Since we have struggled over the last few years to add sites to the network and, in fact, we've obviously... taking size out as we've gradually optimised it. And so we've had to rely more heavily on the Liberty network to deliver the sort of network growth and scales uplift in the retail segment. Now that, again, that dynamical change once we take full control of the business in the second quarter and we'll be much more And, you know, I'm able to make our own decisions around network conditions and so on, which will also help to deliver the sort of growth that we had set out a few years ago when we made the transaction. So... Does that make sense?

Yeah. Well, yes. We don't want Javon Wilson away, though. I didn't like the change of the business model we've got. I mean, I think that was a bit of a soft one. I would have thought that... Yeah, I know it's integrated, but at the end of the day, this business should be generating, you know, 65, 70, 75 million litres a week, given the brand, the strength, the site. And it looks like it's lost share over the last couple of years. And it was basically, you know, going out and getting that share back again. That was where I was coming from.

Yeah, I think, David, and thanks, appreciate your feedback on the targets. I'll certainly work hard throughout. But... I think you're right. I mean, I do think the business has potential to do more. I think we were growing share and regaining some ground, and I think for a period of quite challenging COVID impacts, mobility and travel withheld share, and we've weathered that pretty well, and we've seen some decent retail results through that period. Now, as we start to see a little bit of return to activity, I think there's a real opportunity for us At the same time, when we talk about the break-even levels, it's worth pointing out that when we reflect on the time we did the reset back in 2019, Coles pointed to a break-even level that was around that 62 to 65 million litres a week. And if you track some of the results that have been published today and in the past sort of six months or so, that business has continued to perform well in shop. Sales revenue is up around 5% or so and gross margin contribution is up a couple of percentage points and when you track that through to the fact that they've been able to hold costs pretty flat, the actual shop contribution has improved such that I think that the break-even level has reduced from that 62 to 65 million litres a week to somewhere in the 50s and in the sort of high 60s or around where we are at the moment. And I think that does give us a little bit of opportunity to pick up a business that's in good shape and continue to grow. What it says to me, Sue, is that the trajectory in shop and the potential for contribution, for convenience to continue to grow and outperform is really strong. And that's certainly something that we've got to work towards as we get and our work performance on the fuel side. And like I mentioned earlier, I think we'll have a lot of opportunity to work both shop and fuel hand-in-hand to get the right mix of balance right over time.

Yes, sounds very promising. But just swinging tacks, Scott, if I can. The one pleasing, or really pleasing, other than the opportunity in retail, but the really pleasing part of this result is the commercial outcome. It seems as though you've been able to gain share there without margin giving away margin. And it's probably that slide on 14 is probably the best slide that you've ever presented other than, you know, not refining here and there, but that is a magic slide. But what I really like about it here is new growth in businesses, market recovery and gaining margin. How have you been able to do that? How have you been able to grow business without compromising margins? Because normally in this business, to gain new business, you have to give away margin or at least you arbitrate, some customer takes it away from you. Can you give a bit of what's going on there? Because that looks a terrific outcome. This is, in my view, the attraction of this result.

Yeah. Thanks, David. I think a couple of things on retail. I think on your comment around share, we've actually held share in the Alliance throughout the last few years. So I think that's maybe not where we ultimately wanted to be but I think done pretty well to hold share within that channel and grow and share in other channels. So overall retail is up on share through the last two or three years and obviously bridging into commercial, it's a bit the same story that we're doing well. But we're doing well in the areas that we're really targeting, which is more of the value-led segments. And we see a lot of that comes from our specialties businesses, which are all obviously quite unique in different competitive sets. And I think we've forged a very good reputation as a supplier in many of those segments. And so that has really helped to pick up new business. But even in aviation and traditional aviation resources and transport, I think we're focused on where our strengths are and where we can deliver value for us and value for our customers in terms of locations and the areas in our markets where we have a particular strength. So I think rather than just chasing volume for volume's sake, we've been quite selective. And as I said earlier, we've been very good at managing our relationships with customers and dealing with the cost increases that we've seen as well, which is also reflected in the overall performance of commercials. So, you know, I think it has been a wonderful year for commercial. It's been, I think, well-deserved because a lot of the results you see this year are multi-year in preparing for. So I think it's a long work the team have done to really build very deep, close relationships with all our customers and potential customers as well.

You're notwithstanding the spot comment, it looks like it's sustainable going forward. Is that fair call?

Yeah, I think a lot of it is, absolutely. Obviously the volume recovery, volume growth for new customers is all sustainable going forward and hopefully for new customers there will be additional earnings that come from that in the years ahead because obviously there's a phasing before you see the full benefit. So, yeah, I think it's a strong performance. The call-out would be that the marginal spot sales is probably a bit of a one-off.

Maybe, maybe not.

You never know. You never know what's ahead this year, correct.

You might keep it. Good luck, yeah. Thanks, Scott.

Thanks, David.

Thank you. Your next question comes from Joseph Wong from UDS. Please go ahead.

Hi, guys. Well done on a great result. Just a question, or two questions from me. The first one is just looking at the target you have for Liberty for 150 sites over the next two years. You've increased sites by two in the last 12 months. Should we be expecting most of the growth to be in 24? Or how do you think about that growth over the next few years?

Yeah. Yeah, I think we have... When we set the 100... When we set the 150... We've obviously been through the pandemic, it's been difficult to add the network that we expected over the last couple of years and so you can see that in the results for last year. We do have a pretty active pipeline though in the year ahead, next couple of years, so there is a lot, there'll be certainly a lot more coming through this year and next year. Yeah, we may not get to the 150 by the end of 2024, the time that we've lost, but we'll get a lot closer than where we are at the moment. That's probably how to think about it.

Yeah, got it. And I guess the question for Carol is, just as coming in as the CFO, the business will be having Cold Express come through, so the earnings should be more stable. Is the one to the one and a half net debt EBITDA still appropriate for this business?

Yeah, that's what we're sticking to at this point. I mean, you always want to reassess depending on where we're at and any potential future growth opportunity, but at this point, it remains appropriate.

Okay, thanks. That's all for me.

Thank you. Your next question comes from Rob Coe from Morgan Stanley. Please go ahead.

Good morning, or good afternoon, actually, and congrats on the result as well. Maybe ask a question about the GAC imports terminal. You may have said this before, but I guess I'm a bit new to the company. In addition to the mandatory code of conduct, is there other policy that you're waiting on to finish your FID? And I guess also, is there any update on the project costs that you could share with us at this point?

Yeah, thanks for the question. I think I'll give a general update. I mean, where the project is at from a status perspective is we are still waiting for a regulatory approval from, effectively, the Victorian government for the EES process. So we're at the very back end of that. To be frank, we were expecting that towards the end of last year. But due to the Victorian government election going into hold over there, it's pushed into this year. So that's the critical phase at the moment that we're looking to get through, ahead of then ramping up to FID after that. So there's not other regulatory pieces that need to fall into place for that. And obviously, the changes to the gas market through the mandatory code have an impact on the commercials and the expected participants in the project.

Okay, cool. Thank you. And then maybe can I ask a question about Viva Polymers and the Bedell facility? So from memory, the output of that is about 130,000 tonnes of PP a year. Could you give us a sense of what the required fee stock is to get to that capacity or whatever the run rate is and therefore a sense of what the circular opportunity might be?

Right. I mean, the feedstock's obviously just the normal feedstock for the refinery, so in terms of actual supply, that's dwarfed by what the refinery trades in. I think where your question's going a little bit is if we bring circular feedstocks and waste materials in, how does that then account to the polymer's production? and broadly what you would do is identify the feedstock that comes into the refinery and you mass balance it through accreditation regimes such that it can be attributed to the polypropylene produced at the back end. So, in that regard, it's effectively one-for-one. So, to the extent that you can bring in all the circular feedstocks, you would max out the cost to the polypropylene business. Now, that said, these are all relatively new technologies, and it started small-scale. So, we're doing small-scale trials this year, and there's a few pilot facilities that are up and running in Victoria. So this will start small and then we'll look to grow it over the medium term. Okay, great. Yeah, that sounds very sensible. Good luck with it.

Thank you. Thank you. Your next question comes from Carol Cranders from Barron Joey. Please go ahead.

Hi, guys. Just, I guess, following on from Aero, just your thoughts towards EB. You've got two competitors who are running really hard on land grass, building a network. and a focus on winning mixed fuel from fleet vehicles over the next couple of years. How are you thinking about an EV strategy when you need to effectively grow volume through retail to get the earnings on the Coles acquisition?

Yep, I can maybe talk to that one. So just to pick up on a couple of things you said there, I mean, when you talk about land grab, obviously we've got a great asset base to start with, particularly now we get the forecourt and control of the network back from... I can talk a bit to that as well. I think we've got a good network to look to roll it out. It does become easier for us to grow that EV offering when we take control of the forecourt back from Coles, obviously, while they were running the sites. it was their sort of day-to-day control of the site and so deploying even infrastructure onto that will become a lot easier as we take that back in the next couple of months. So I think there's an opportunity there to start to look to do more than we have so far. In terms of the, I think, reading through the question around sort of the power grid grab, I mean, it is still relatively early in the market, and I don't think we're seeing sort of criticality of being able to access the grid in order to deploy EV infrastructure. I think what we... Maybe, as I said, reading the comment a little bit, what's important in that is if you have to upgrade the power connection to the site, that can add to the capital expenses of rolling out EV infrastructure and that's certainly true. So site selection is critical but there are other ways to optimise that as well, including the type and size of charging infrastructure that you roll out. as well as solar optimisation, potential batteries on site and just the other powers and functions at the site. So we think that that's all manageable and isn't sort of at the level of sort of the criticality that you were leading to there. Our focus will be very much about site correction to drive utilisation. of MWD charging we roll out and to very much support the broader convenience offering. So right-sizing that for the growth of the market and very much supporting the broader convenience strategy in generating a wider variety of income streams from those sites.

Okay and then just finally, the comments on the safeguard mechanism. How are you thinking about the cost of carbon on the refinery and what actions are you taking

Yep, so I can talk a little bit to that as well. We're obviously still in consultation with regard to that, provided the government gets through the political challenges. But at the moment, we're obviously expecting that to come in. We had already set our own voluntary emission intensity target for 2030. The safeguard is tighter. It's a higher target than what we expect. But on the back of that work, we've done obviously the work to support it to look to energy efficiency and projects that will give some direct emission reduction benefits at so long. So we'll continue to progress those projects so that we are delivering that lower emission intensity outcome in any event. We do also expect that the safeguards provided generally in the parameters that we've seen so far will lead us to be in the carbon credit market in the longer term. That's something we've already looked at quite a bit considering we offer to the market fully offset carbon fuels. And so we're sort of well down the track in terms of our thinking of how to participate in that market and invest in projects. So I think it becomes a management exercise going forward, but we think it's quite manageable.

Okay. Sounds like some good opportunities to invest in both going forward. Thanks.

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

Hello, thank you everyone. Thank you all for joining us this morning and for your questions. As I mentioned at the beginning of the session, 2022 was really an outstanding year for the company with all three businesses performing extremely well. From a strong baseline, I do believe we're really well positioned for the year ahead and beyond in terms of our strategic priorities. I'm pretty excited about the projects and opportunities we are pursuing and I think they'll put us in good stead for both the energy transition, energy security and and broader diversification of our business in the long term. Thank you, Dan, for all your support. Have a great day.

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