Viva Energy Group Limited

Thank you for standing by. Welcome to the Viva Energy Australia first half 2023 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 Mr Scott Wyatt, CEO. Please go ahead.

Hi, good morning, and thank you all for joining us today to discuss Viva Energy's year 2023 results. My name is Scott Wyatt. I'm the Chief Executive Officer of Viva Energy and on the call with me today is Carolyn Pettit, our Chief Financial Officer and Jovan Buzo, our CEO of Convenience and Mobility. I will 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 always, I'd like to begin with some comments on our safety and environmental performance, as set out on slide 5. Personal safety performance has continued to improve this year, with a steady reduction in the engineering frequency rate, fewer loss of primary containment events and zero posted safety events. I think these are particularly good results, given that we had more than 700 additional workers join the team at Geelong Refinery to carry out major maintenance works during the second quarter. which was subsequently extended as a result of the contractor claim failure we announced in June. This was a significant incident, but I'm really pleased that our procedures were followed and no one was in harm's way when this occurred. Turning to slide six, let me first touch on changes that we've made to the way we report our results. From this period, we will segment and report our financial results across three distinct business units. Convenience and mobility, commercial and industrial, and energy and infrastructure. Each of these businesses operates in very different markets with different customers, competitors, economic drivers and strategies to reflect the opportunities that we see. The acquisition of Coles Express and OTR Group are good examples of how we are uniquely developing our convenience and mobility business. Karen will discuss the implications for our financial statements a little bit later in the presentation. Now turning to the first half highlights, Group EBITDA for the period was $362 million, in line with our previously announced unaudited result. At a segment level, our convenience and mobility in commercial and industrial businesses continued to perform very well, with strong sales performances and earnings lifting approximately 40% over the same period last year. Our energy and infrastructure business was of course impacted by both planned and unplanned major maintenance in the second quarter, as well as lower regional refining margins compared with the exceptional margin environment we saw last year during the commencement of the conflict in Ukraine. From a strategic perspective, we completed the acquisition and transition of Coles Express in May and announced the acquisition of the OTR Group, which is currently progressing through the regulatory approval process. Together these acquisitions will see us become one of the leading convenience shoe tailors in the country. On the back of these strong performances we have determined to pay dividends at the top end of the range in respect of the non-refining Ermies, representing 8.5 cents per share. Our balance sheet remains strong, ending the period with net debt of just $274 million. Now let me turn to slides 7 and 8 to discuss our sales performance in a bit more detail. Fuel sales are up 11% to 7.6 billion litres for the half, a record for the company as a listed entity, and lifting our market share to around 26%. Convenience and mobility sales volumes increased by 4%, led by growth in our company-controlled network previously Coles Express, and by the continued growth of the Liberty Convenience Network, which now stands at 95 stores. The commercial business achieved sales growth of 15% led by the continued recovery in international aviation and robust demand from wholesale and other segments. This particularly strong sales growth should be considered in light of the general market conditions which do remain relatively subdued. As you can see on slide 8, petrol demand remains around 7% below pre-COVID levels due to sustained changes in mobility patterns and more recently cost of living pressures. while diesel demand has been more resilient for effective of the broader economic conditions which remain favourable and supportive of our commercial and industrial performance. Jet demand continues to recover, with more recent growth stemming from the recovery we're seeing in international travel. Turning now to refining, our regional margins, as set out in slide 9, remain strong relative to historical levels, notwithstanding the elevated margins we experienced during the weeks following the invasion of Ukraine last year. Reductions in refining capacity, outages associated with ageing plants and generally tight oil supply continued to be supportive of stronger margins, with Chinese demand and export quotas continuing to influence our regional environment. Geelong was naturally impacted by the planned major maintenance in the second quarter, which was subsequently extended to allow for repairs to the hydrogen compressor. Crude intake was 16.2 million barrels with a GRM of $10.80 per barrel for the period, which reflects both a reduced crude intake as well as lower production of diesel. On a unit rate basis, fixed operating costs were also elevated through the period as a result of this lower intake and production. We remain on track to return to full production in September and we are well placed to take advantage of the currently healthy and refining margin environment that we see. We now hand over to Calvin Pettis who will talk in more detail about our financial performance.

Thanks, Scott, and good morning, everyone. So let's start on slide 11. So as Scott has touched on, we have formally changed the way in which our business results are reported. So our financial statements no longer report the business as the two segments of retail, fuels and marketing and refining. So convenience and mobility and commercial and industrial are now reported under their own segments, while refining will report under the new heading of energy and infrastructure. And this also captures the evolving Geelong Energy Hub investments. Now, the first half results demonstrate the valuable diversity of the group. So EBITDA for each of the convenience and mobility and commercial and industrial businesses grew by approximately 40%, and that supports the group EBITDA of $362 million. As we see, refining was down significantly on the same period last year as we cycled through the exceptional margins that existed at that time and also reflecting the major maintenance activity at Geelong during the second quarter that Scott talked to. Now, the convenience and mobility business, we'll start with that, delivered its best performance in recent years as shown on slide 12. The EBITDA increased by 40% to $123.7 million. and this result was driven by ongoing sales growth and improved conditions compared with the first half of 2022, which is impacted by rising oil prices and changes in excise. Now, these improved margins more than compensate for the increases in lease costs and operating expenses. Turning to slide 13, the commercial and industrial business delivered a record $231.2 million of EBITDA in the first six months of the year. And this performance was supported by sales growth, which was led by the recovery in international aviation, and continued robust demand from existing customers in other sectors. Our margins have improved as higher supply costs have passed through customer contracts, and we continue to focus on growing higher value segments, such as our specialties business. Now, refining, as I mentioned previously, refining was significantly impacted by the major maintenance turnaround, which is this extended... due to the compressor incident in the second quarter. EBITDA was $22.9 million, a significantly lower result compared to the record period last year. The compressor incident delayed the restart of processing units and extended the outage of the platformer and associated units, and this impacted production of high margin fuels, including premium gasoline and diesel. We also had to replace crude oil with additional imports of refined products, which significantly affected shipping costs and also impacted the GRM. So outside of direct impacts from the turnaround and the incidents, operating costs declined period on period. We have lower engine costs, which more than offset the increased manufacturing costs from general labour and primary materials. And we expect to see improvements as the refinery turns to full production and maintenance activity reduces for the remainder of the year. Now, as set out on slide 15, net cash flow was negative $88 million during what was an unusual period. So, we continue to manage the cash position exceptionally well with the release of working capital more than offsetting the net inventory loss. And this is important as we manage the disruption from the extended turnaround, higher capital expenditure and the $300 million cash payment for the Coles Express business. So despite lower refining margins and the extended turnaround, underlying free cash flow was strong at nearly $120 million. This is before borrowings, dividends and investments. And it also excludes the CAPEX for multi-year projects as part of the skilled security package. And now turning to CAPEX on slide 16, we remain on track to meet the full year guidance we provided at our FY2022 results. We invested $207 million in the business in the first half, net as government contributions, and expect to invest approximately a similar amount in the second half. Although we confirmed full year 2023 guidance, you'll see that the mix has changed somewhat. So another $25 million is required for the major maintenance turnaround due to lost productivity that's associated with the compressor incident and the larger scope of work. So this is offset by slightly lower anticipated spend in the base business. Management and the board remain highly focused on return on capital in the current environment and have more say on this in our investigation at the end of the year. Moving to slide 17, which shows our balance sheet provision. After starting in 2023 at net cash of $290 million, we moved to net debt of $274 million at the end of June. During the period, we paid shareholders a record dividend following an outstanding result in 2022 and completed the remainder of our previously announced buyback. The cash consideration for the Coles Express business was $300 million, but the net impact was only $140 million. And as a reminder, the difference reflects working capital benefits of approximately $60 million post-completion, and also the settlement as a payable of $100 million that was previously recorded on BVMG's balance sheet. So the discipline management of our balance sheet has put us in a good position to fund the acquisition of the OTR group and maintain flexibility for further opportunities. And we can certainly continue to target long-term hearings between one to one and a half times based on term debt underlying EBITDA. Now, slide 18 provides the breakdown of the dividends announced today. At 8.5 cents per share, the interim dividend represents a 70% payout ratio of net profit from the convenience, mobility and commercial and industrial segments, and that's at the top end of our dividend policy range. At a group level, this equates to a 75% payout ratio. Now, the decision to pay out at the top end of the range reflects the continued strong and relatively stable performance of our convenience, mobility and commercial and industrial businesses with excellent cash conversion. This dividend will be payable to registered shareholders on a record date of the 6th of September 2023 with a payment date of the 20th of September 2023. So I'd like now to hand back to Scott to cover our strategic update and outlook.