Viva Energy Group Limited

Thank you for standing by and welcome to the Viva Energy Australia full year 2023 results. 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, Chief Executive Officer. Please go ahead.

Good morning, everyone, and thanks very much for joining us today. My name is Scott White, Chief Executive Officer of Beamer Energy, and on the call with me today is Carolyn Pettit, Chief Financial Officer, Joanne Levo, our CEO of Convenience and Mobility, and Dennis Berberio, as EGM of Commercial and Industrial. I'll begin by acknowledging the traditional owners of the land on which we are collectively gathered for this call, and pay my respects to their elders past, present and emerging. As always, let me start with our safety and environmental performance, which is set out on slide five. Last year was a very good year for the company, with the extended major maintenance activities along refinery and the transition of the Coles Express business, including taking full control of operations across the retail networks. Given that amount of change, I'm really pleased with our safety performance, which remains steady, and indeed some really good improvements in process safety. Looking forward, I am conscious of the new risks we have taken on with the growth in our convenience and mobility business, and particularly the impact on our team members from robbery and crime that unfortunately occur from time to time. We have inherited good processes from Coles, and we will continue to look for ways to improve our security and safety across the retail network as we upgrade stores and enhance our offer. Across the rest of the traditional business, we continue to invest in improving asset integrity and inspections to reduce the risk of leaks and spills, and generally driving a strong safety culture, which remains a great source of pride in most Beaver Energy employees. I'll turn to slide six. 2023 was very much a transformational year for Beaver Energy. We delivered a strong financial performance and made significant progress on a strategic agenda, which we shared with investors at the investor day in November last year. Group sales increased by 9% to 15.5 billion litres, now 5% above pre-pandemic levels. Pre-visit sales were $713 million, which outside of the refining business represented a 16% increase on 2022. Our refining operations were of course set back by the extended major maintenance, however the team responded well to maintain safe supply to our markets, and the underlying regional margin environment remains healthy. On the strategic front, we took many steps to advance our convenience and mobility strategy. The first step was the acquisition of the Coles Express convenience retailing business, creating a platform for growth in the attractive convenience sector. The second was the acquisition of the OCR Group, which received ACCC approval towards the end of last year. As you know, OCR is a world-class convenience retailer that creates substantial growth opportunities through its sophisticated offering, advanced systems and substantial synergies. Our commercial and industrial business delivered another exceptional year and continued to improve the quality of our business through the development of high-quality strategic accounts, such as RMTS and the Australian Defense Force contract, which leaves us becoming the exclusive supplier of aviation, marines and ground fuels. The Geelong refinery was critical to this contract, cementing leader energy goals and providing energy security to Australia and supporting further investments in the energy hub, including the construction of strategic storage reduced waste of the gasoline. Given these strong results, the Board has determined to pay dividends of 15.3 cents per share for the year, 10% about last year for the non-refining businesses. Our balance sheet remains strong, ending the period with net debt of $380 million. So let me now turn to each of our three businesses to discuss the results in more detail, beginning with the convenience and mobility business on slide 7. The retail marketplace was somewhat challenging last year with cost of living pressures, high pump prices and illicit tobacco sales weighing on sales growth. The third quarter was potentially challenging as rapidly rising oil prices, compressed retail fuel margins and denser demand. In that context I'm very pleased with the performance of the convenience and mobility business which maintains fuel sales in line with the prior year and outflows tobacco group convenience sales by 8% with good improvements in gross This demonstrates the resilience of this business through challenging times and the growth opportunity as we further extend the convenience offer and economic conditions improve. EBITDA was a very solid $232 million with a strong fourth quarter as trading conditions improved. Turning to May 8, the commercial industrial business delivered another record result in 2023, lifting sales by 13% and growing EBITDA to nearly $450 million. Aviation demands, particularly this national segment, to continue to steadily recover, with jet sales up more than 40% over 2022, and now at 75% of our pre-pandemic levels. Diesel sales have also been strong, up 7% on prior year, with strong demand from all C&I segments. New business winds provide further growth opportunities through 2023, but earnings are expected to be somewhat volatile, driven by continued Overall, the C&I business is in great shape and we are progressing well towards our aspiration of building a sustainable $500 million business. The addition of the OCR wholesale division will make an important contribution to this outcome once the acquisition is completed in the near future. Turning to refining on slide 9, our performance in 2023 was naturally impacted by the extent of major maintenance during the second and third quarter. Crude intake was reduced to 31.6 million barrels. and refining margins were lower at $9.80 per barrel. While refining, regional refining margins remained elevated through the year, Geelong's margin performance reflected a lower production of diesels and larger production of intermediate products during the turnaround. The refinery returned to normal operations in the fourth quarter and is well positioned to capture the stronger margin environment that we have experienced so far this year. The strategic growth facilities were on track to be commissioned in the third quarter, and construction has commenced on the wastewater upgrades to the refinery. Now, if you'll hand over to Carolyn Pettis, who will talk to you in more detail about our financial performance.

Excellent. Thanks, Scott. And good morning, everyone. Let's start on slide 11. So, when comparing FY23 with FY22, it is important to note the extraordinary environment we experienced during 2022, which was heavily impacted by the evolving conflict in Ukraine. and disruption to global energy supply chains. So this energy particularly benefited from periods of high refining margins and advantage procurement arrangements that were put in place with our trading partner, Bittol. Now these procurement arrangements provided material support for the record earnings that were delivered in that year in 2022 and were expected to unwind as energy markets normalized, as we have seen during 2023. This represents a normalisation of earnings in the order of $56.5 million, which is embedded in the CNM and CNI earnings results. To put this in context, combined earnings across both these businesses grew by $180 million in FY22 from the prior year. But after adjusting for these unwinding procurement centres, as we all shared last year, convenience and mobility grew by $17 million, and commercial and industrial by $135 million on an underlying basis. Energy infrastructure was, of course, impacted by the extended major maintenance events, as well as refining launches and normalising. So on slide 12, we set up the earning fruit of the convenience and mobility business. Now, following a particularly strong result in 2022, EBITDA declined 7% to $232 million, D.C. unwinding of procurement benefits, which I just covered, along with a significant shift in operating metrics, as we took control of the convenience offerings from May. So although these benefits unwound during 2023, along with some impacts from the disruption at Geelong, which did closer to the retail business, this was offset by strengthening industry margins. Property costs increased in line with lease terms, and operating costs were higher, reflecting inflationary effects and marketing investments as well. So we've set out in some detail an impact from the integration of the Colt Express business from the 1st of May 2023 in the bridge. So going forward, fuel margins will be improved through the elimination of the fuel commission previously paid to Colt Express and also through the direct participation in convenience sales and margins. So operating costs will of course be higher to reflect the costs of directly operating stores and through higher overheads from Colt Express and the transitional service agreement with the Colts Group. Their contribution from Colts Express in 2023 reflects the first eight months of performance without any integration benefits. As we have said, the earnings up to which we expect improve the integration of that business, which is going well. We do see significant opportunities from the above market convening sales growth, products and category initiatives driving high gross margins, and lower overheads as we progressively exit the transitional services agreement. Now, moving to slide 13, as Scott mentioned, the commercial and industrial business delivered $447.5 million at EBITDA in 2023, and that's an increase of 33% on 2022. There were several drives of growth, robust demand from most sectors, the benefit of new business wins over several years, a continued focus on higher margin opportunities across our specialty businesses and a continued recovery in international aviation. For C&I, margin management and our focus on specialty products and services more than offset the reversal of supply chain benefits from the prior year. Moving on to slide 14, energy infrastructure EBITDA of $65 million was down significantly on the record 2022 results. lower retail refining margins, and the extended turnaround were responsible. The compressor insert in June delayed the restart of processing units for several months, preventing the refineries from producing quite a large amount of products. And because of that, we had to sell intermediate products at a lower margin and import more refined products at a timely shipping cost was high. Insurance recoveries of $18 million were recognised and need to go to pass at the impact, as well as a slight decrease in operating costs and lower energy costs. Now, on slide 15, we show the bridge from either dark to the net cash flow of negative $75 million during what was a highly unusual period. The trader team did a fantastic job to manage our cash position this year, navigating the disruption from the unplanned turnaround continued volatility in oil prices and almost $350 million in acquisitions. And as expected, the cash position also manifested from a working capital benefit of around $60 million after completing the Colt Express acquisition. Underline free cash flow was almost $200 million, which includes the capital expenditure from the turnaround. This is for borrowing, dividends and investments, and excludes operational in-cap ex for run-off multi-year credit. Now, talking to CAPEX, building further into that on slide 16, we continue to take a disciplined approach, prioritising the most compelling opportunities in the current environment. We invested $452 million in the business on a net basis, that's within guidance, despite the low that expected government contributions relating to project timing milestones. That's timing only. Outside energy and infrastructure, CAPEX was broadly in line with 2022. The increases in 2023 were driven by major refining maintenance, which required a larger scope of work than anticipated, and the ramp-up of investments in L2O sulfur gasoline projects. For 2024, we maintain our guidance set out at the investor's aid for $440 million to $475 million net of government contributions. Please note this excludes OCR, and we will provide an update and guidance at completion of the acquisitions. Moving to slide 17, it shows our balance sheet provision. After 2020-2033, with net cash of $219 million, debt versed at the end of the year was $380 million. The move was largely caused by a record dividend payment to shareholders following the outstanding 2020 cost-to-result, deposition of Colts Express, and the high and high debt program. A balance sheet position provides substantial capacity to fund the acquisition of OTR and also pursue opportunities in-home with our strategic objectives. We expect to refinance the OTR acquisition to return debt during 2024, subject to our conditions. So we continue to target long-term gearing of between one to one and a half times based on turn debt and growing EBITDA. Our slides, AP provides the breakdown of the dividend announcement today. At $7.2 per share, the final 40 frames of an end represents a 70% payout ratio of net profit from the convenience and mobility and international industrial segments. This is at the top end of our dividend policy range. And this equates to a 76% payout ratio for the group. The decision for payout at the top end of the range reflects the large and grand contribution to our non-refining business. Both convenience mobility and commercial industrial generate excellent cash conversions with a relatively stable earnings profile. The energy and infrastructure business is assessed annually under our dividend policy and did not pay a dividend in 2023. The dividend will be payable to a registered shareholder on a record date of 8 March 2024 with a payment date of 22 March 2024. So I'd now like to hand back to Scott to cover our strategic update and outlook.

Thanks Carolyn. Since our investment strategy in November, we've continued to make some excellent progress on our strategic agenda. We've also announced our intermediate converting the coldest rest stores to Ready Express, with 12 stores now displaying a new branding at the end of last year. We plan to convert more than 300 this year to meet the milestones set out in our agreement with Coles. These are relatively simple conversions that the in-store experience and customer offer largely remain unchanged. We are refurbishing select stores to prepare them for their eventual transformation to the OCR offering. We also continue to roll out initiatives to improve the existing food store offer, our loyalty programs, and more suitable pricing for the convenience sector. The OCR acquisition is on track to complete in the first half of 2024, following ACCC approval, which we secured last year. The approval requires us to prevent 25 sites in South Australia to strip wrong, which have also commenced. In Australia, we are receiving 13 sites located in Queensland, New South Wales and Western Australia. Work has also commenced to secure regulatory approvals for the remaining 50% states in Liberty Convenience. In 2023, we laid the groundwork for our sustainability objectives for each of our businesses, as set out in slide 21. Now that we have full control over our retail network, we are better placed to pursue opportunities to benefit from the energy transition. Late last year, we entered the co-funding arrangement with the New South Wales Government to develop a premium offer of 30 EV charging stations in the state. Our priority is to upgrade our convenience offer through the OTR strategy, while looking to upgrade to all EV charging simultaneously at the most suitable sites. OTC's experience has shown us that a compelling convenience offer, the best locations and a focus on customer service are critical in attracting drivers to EV charging stations over other locations. We've also initiated plans to roll out rooftop solar across the network as part of a multi-year program to reduce energy costs. And in 2024, we will be targeting sites in Western Australia, Northern Territory, Queensland and New South Wales. Last year, we also gave our customers more options to manage their emissions. We now offer a full sweep of carbon neutral products under climate access, which remains an important interim measure until low-carbon fuels become commercially viable. At the same time, we are actively working with customers to trial these sorts of fuels. We distributed sustainable aviation fuel for the first time to the Australian Defence Force, collaborating with manufacturers and using our extensive supply networks and operational expertise. We are also supporting cleaning away the trial of 100% renewable diesel made from waste feedstocks. As I mentioned, we are also well-programmed in upgrading the refinery to produce low-cost petrol. As the federal government has extended the deadline for both requirements, we are no longer seeking a waiver and we expect to complete the two projects in the second half of 2025 at a total cost of $200 million net of the government funding. We are also working to reduce our own emissions. a 10-year power purchase agreement with FACTIO ACNONA to provide renewable electricity from the Mount Jolly Grand Wind Farm. The deal is expected to be the largest electricity and environmental certificate contract ever completed by Viva Energy, having the potential to meet nearly all of Viva Energy's net Euro Scope 2 targets, as well as providing an effective hedge against the high electricity prices in Victoria. Let's now turn to the outlook for 2024. As set out on slide 22, While energy markets remain tight and volatile, our convenience in commercial businesses are increasingly driving strong and stable earnings, with steady growth from our strategic agenda. Community sales demonstrate continued growth outside of tobacco, and we look forward to capturing a full year of gross margin benefits, as well as the uplift from the OCR acquisition once this completes. We expect continued demand strength from our commercial and industrial businesses, with a further uplift from the acquisition of the OCR wholesale divisions. Supply and cost are expected to be volatile due to tightness in energy markets, and we are facing some headwinds for rising shipping costs in particular. Nonetheless, as you know, this is a very diverse business with demonstrated resilience to sectorial cycles. Refining margins remain elevated, and our refinery is operating well following the major maintenance last year. We had minimal maintenance by 2024, and we are well-placed to maximise production and take advantage of a supportive refining margin environment. In summary, we're very excited about the year ahead. The environment is challenging in some areas, but we now have a strong and diverse portfolio which is well-positioned to capture growth opportunities with strategic initiatives that provide considerable upside outside of the market fundamentals. It's a big execution year, and we have begun the year with strong momentum. On that, let me now open it up 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. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Michael Simotas with Jeffrey. Please go ahead.

Morning, team. My first one is relating to the Outlook commentary or the Outlook comments. around supply chain costs and volatility. In the past, Viva has fared very well through those sorts of environments. You seem to be a little bit more cautious on this particular environment. Can you just give us a little bit more colour on why that is and how that's likely to flow through the business?

Thanks Michael. Thanks very much for the question. I think we have shared extremely well through some pretty challenging times over the last few years. I mean, 2022 was a particularly strong year for Viva Energy, as you know, and our supply chain advantages were a big part of that performance in 2022. So I think we've got some good track record of managing our periods of volatility. I have great confidence about the year ahead as well. I think all we're calling out is particularly to resolve more recent events in the Middle East and the impacts that it's having on shipping costs. But that is a bit of a headwind potentially. But at the same time, you know, I sort of remain confident in our supply chain capability to navigate all of that and to protect earnings and continue to grow. It's just one of those factors that we'll have to manage through this period. But I wouldn't say that we're seeing it as a significant

Okay, and do you have pass-through arrangements in your major commercial contracts?

Yeah, all of our contracts, I'd say the majority of our commercial contracts provide pass-through for a lot of the costs that we place them to and we've got three of those in the Certainly shipping costs and other supply chain costs, there's greater possibility to pass that through to our customers and through to the market.

Great, thank you. And then just a couple on Coles Express or Convenience and Mobility if I can. Just a clarification, if I look at the waterfall chart and some the individual drivers of Coles Express, they've summed to near exactly zero. Does that mean there was zero EBITDA contribution from Coles Express in this period?

Thanks for the question Michael. We've got Jovan on the call and a perfect opportunity to give them a bit of an opportunity to talk about how the integration has gone and the contribution from the Coles Express

Thanks for the question, Michael. Yeah, that's about right. So we basically had eight months' contribution as the Coles Express retail business. So we're progressing really well on integration, but we're still within transitional services arrangements and other transitional, I suppose, integration arrangements we put in place for the business post-transition. So I think in the context of the first eight months, some improvement we've made in shop and margin and how industry's traded over the course of last year, it's been a good outcome to add the business in. I would have liked to see it contribute a little more, but still confident that as we complete integration plans over the next 12 to 18 months, we'll see a meaningful uplift that we talked about when we did the deal.

Okay, and then just one quick one while I've got you. There's a bit of industry feedback that Coles Express has been a bit more aggressive on fuel price in the last few months. Is there any sort of change in strategy on how you're likely to price your fuel offer or is that just the usual sort of noise?

No, I think that's the usual sort of noise. I mean, it's been our intention to remain competitive in market and that hasn't really changed over the last couple of years. I mean we definitely focus on positioning the brand and the stores that work both from a fuel and the convenience perspective and making sure that the fuel price positioning and the shelf price positioning line up in a way that provides the right level of value for customers. But, I mean, we haven't made any significant or material changes to the strategy. That's been a focus for some time now. But, obviously, having control of the shop means that we can be a little bit more targeted with offers across shop and fuel and be consistent across the two. But, yeah, certainly no change or no intention to move fuel pricing strategy in that regard. I think it's been... a bit of a soft mobility period over the past few months in some states, and so maybe that's contributing to a bit of chatter, but they're all pretty good from our perspective.

Okay, great.

Thank you.

Your next question comes from Dale Conders with Darren Shelley. Please go ahead.

Morning, Jens. Just a question, I guess, firstly on OTR. I was hoping, Devon, you could provide a little bit more colour on how you've seen that business running over the last 12 months. Has still count changed, if you can put any numbers on that, profitability, any sort of guidance on how that business has been running?

Yeah, I can talk a little bit to that. I mean, we're obviously pre-completion. There's some information sharing requirements that we agreed as part of the transaction. Obviously, we're pretty well engaged with how they're going. They don't publish numbers, as you know, but I can say that they're performing in line with our expectations and the business case that we put forward. when we announced the deal so I'm feeling good about that. I think the structure of the deal and the arrangement and obviously providing a material portion of the price in equity in the Beaver business has worked well and it's kept the sellers pretty focused on running that business successfully because they obviously benefit from that success as well through the issuance of equity. We've got good alignment. We're obviously still working within some competition constraints because we haven't completed yet. But everything I'm seeing and engaging with them on is heading in the right direction. And the focus on innovation and continuing to expand and grow the offer in that business has continued at pace, which has been really pleasing to see. planning for completion now, which is obviously a busy time, and then looking to start seeing some of the first sites convert through the course of this year, which will be exciting.

Is there a cash adjustment if the completion drags on?

Not super cool to do something like that. I mean, I think where we're at now, we've got our ACCC clearance. We're on track for a third clearance in the coming months. weeks based on their published dates and obviously a few things that are required for completion but it all feels like it's pretty well in hand at this stage so I expect that we'll be able to complete within the first half and there shouldn't be anything that really holds that up in a material way.

Okay and then just a final question I guess for Scott. Just in the refinery operating costs quite high in the half with the T&I, there was a bringing costs back to $8 a barrel. Can you talk about sort of what's going on at the moment, what costs are still elevated, and how quickly you can turn that around?

Yeah, no, thanks, Phil. I mean, I think it's now easy to take that operating costs were high last year as a result of the extended outage, and particularly shipping costs and demarrage costs associated with moving unexpectedly. That will naturally cycle out now that the refinery is back running normally and it's full production and so we've spent most of the back end of last year, quarter four, just hiding that situation after getting our shipping costs back down. So that will just naturally cycle through. Energy has been a bit of an up and up feature of refineries last couple of years. There's a higher cost. That has cycled down through the course of last year as well and where it's been historically. And a lot of our operating costs are obviously impacted by having to deal with an extended turnaround, which again cycles back out. So, I mean, there's obviously continued action in the refinery, the container, drive, productivity, performance improvement, but the sort of big cost improvements that we've seen last year really just will cycle out and flow through to the results this year.

So is that kind of done now, that's got, or is... Yeah, pretty much. I know what that decision is.

We're essentially running this year at a level that we'd expect to be running. Okay, thanks.

Our next question comes from David Empton with Bank of America. Please go ahead.

Morning, Scott. Morning, Carolyn. Probably directing to Jovan. Really pleased with your shop performance, Jovan. Non-tobacco sales up 8% for the full year. where the other mob across the road only delivered 3%. And I saw some really nice margin expansion, gross margin up to 35.7%, which surprised me on the positive. And, you know, the previous discussion where the business was making nothing, I mean, the previous owners previously clearly did zero to enhance that business. So I really thought that that was a very pleasing result. But my question now is, Okay, on the run is done. You know, we're really excited. You know, it's public that, you know, we're pretty positive toward that acquisition, and I think there's some huge upside. But the transition now, I mean, the next six, I'll say it's going to be on July starting date. It's done. The ACCC has approved it, so we're done. So let's be adult about it. The deal's done. What can we expect now for the next six to 12, 18 months starting July 1? Because this transition is going to be For us as investors, we need to get this right. So what can we expect? Now, you've got a business there making zero. Do you attack that? Is there a way that you can attack it? Because that business shouldn't be making zero. It should be making something. Do you attack that or do you basically just ride it through and do you just go full ball on the transition? Can you give us a bit of sugar as to what your thoughts are now that the deal is ready to go? Because I think the second half of 2024 and the full year of 2025 is going to be really critical for us as investors to get right in terms of your transition. So can you go into a bit more depth on that, please, as to what you're thinking?

Yeah, absolutely. And thanks for the questions, Dave. I'll do my best with the sugar. We've got a fair bit to do, and I think I'm really conscious of that. We've got a really good team in place, but I think the short answer is we need to do a little bit of both. The focus now is around identifying stores or the first stores for conversion from a Coles Express or Re Express directly to an OTR and we'll be putting a third bit of focus on getting the first lot of stores converted, trading and running well. But I think you make some really good points. It's not a case of leaving the Coles Ready Express network where it is and just waiting for the conversion to deliver results. Within the number that you see there or the close to break-even contribution, and I touched on it briefly before, we've still got transitional services arrangements in place with Coles. And some of the work that we've done on sales growth, ex-tobacco and margin expansion or in some regards fixing the margin and the convenience store price positioning a little to be a little more aligned with the convenience network has been done progressively over the eight months that we picked up the business last year. So there'll be a bit of cycling of that through the course of this year and a bit more to come and obviously some integration work that should help us improve the cost side a little. So I think the focus for us is, yes, transition is important. We need to get the first sites converted and start to see them trade well and there needs to be a strong focus on that. But I'm certainly not losing any focus on... the opportunity that exists to integrate the Coles Express business or the Ready Express network as it will be in the next 12 to 18 months and have that start to tick along and perform a little better in parallel. So what you do means you've got to do both but I think there's good opportunity on both fronts.

Yeah, because it's important for us as investors to make sure that the profit continues to grow but at the same time that you can transition. So that's going to be something there that you've just got to get right, I suppose. But, I mean, that positive performance in that result since she took ownership is really pleasing. So may I ask, where is the CapEx going this year? You're stepping up your CapEx before the underrun. I think it's going from $40 million to $80 million. And what's your thoughts on the MyCar? I mean, every time I go in, I can't get my car in there because of MyCar. They've got 15 cars parked in the car park, the sort of things. What are you going to do with that? And if you pump them, what sort of benefit and what sort of cost will that be from the sublease arrangement? Can you give us a bit of thoughts, a bit more sugar if you wouldn't mind, on what your thoughts are there?

Yeah, sure. I mean, I think to start with some of the sublease arrangements particularly, I mean, it's not just about my car. We've obviously got a broader relationship with my car across the business as a customer of the commercial business too, but... There's some 430 sub-tenants across our network. Some of those are automated workshops, but a lot of QSRs and other things. To give you some context, there's around 2,500 JATs in the network that are subways. There's a number of vacant, abandoned old workshops and QSRs. They're subways. There's plenty of things in there. Our intention would be to work through those over the remaining five years or so that a lot of the subleases are in place for, given the historical alliance for 2029. It will mean that some of those will come out and convert to company operations in time. Some will move to an ATR and an extended shop. Some will move to a QSR that we'll look to run for other offers. There's plenty of work to do in that space and I hear you. I think the traditional service station with an automotive workshop next to the petrol pumps is probably not necessarily the model of the future and I think you will see a bit of that change over time.

And the CapEx?

The CapEx for us is really a combination of conversion but also investment in store. There's some work I'd like to do on fuel equipment. We've got a bit of aging infrastructure across the Express network, both in shop but also on the forecourt. I think there's a little we can do to optimize things like all products at all pumps, the configuration of premium at some of the sites. There's been some of that work that we've done in the past, some that we haven't given the arrangements in the way that the network was run. And there will be a little bit of improvement that we make to some of the sites that we know will stay already expressed for a longer period. I feel like there's quite a lot of opportunity in that network. And it's fantastic to see how it's performing already, as you say. I mean, everyone who's been to a Coles Express or a Ready Express and then an OTR can see the contrast between the two offers. and it's pretty good that the base offer of Express is still outperforming competitors as it is. So really pleased about how things are going, and I think there's lots of opportunity that we'll be able to unlock.

Well, thank you, and please, if there's a price inquiry, for heaven's sake, don't do a full-corner interview, both you and Scottsdale.

Thanks.

The next question is from Tom Allen with UBS. Please go ahead.

Good morning Scott, Carol and Yvonne and the broader team. We're here in a challenging environment to manage costs currently. So the integration with Coles has seen some high costs coming through. Can you please talk to the specific strategies and mitigations in place to manage the risk of incurring higher than expected costs as Viva rolls out the Ready Express rebranding and OTR conversions following completion?

Yeah, I can chat on that if you want me to start. Yeah, I mean, I think the one... So there is a bit of a cost-inflation environment that I think all retailers have seen across all retail industries. I think the fortunate thing that's playing in our favour at the moment is the growth and the scale that we've got. Most of the partners and suppliers that we're working with are looking at the opportunity over the next five years plus to really double the size of the network and to grow to... and rebuild stores and we've actually seen really good engagement across our contractor and supplier base where they look at the opportunity to come and work with us on scope, work with us on cost and optimisation and really try to be part of the bigger picture. So I think that's really helpful and that supports us. I think if you're in a run and maintain space and you're perhaps not as interested to some of your suppliers around growth and expansion, it's harder to get that buy-in and support, but I felt like we're in a pretty good place, plus we'll obviously have the scale that should bring us some benefit over time too.

Okay, thanks, Javon. And then just hoping for some comments on the fuel volume outlook, and just specifically what are the key initiatives that Beaver are utilising to drive higher retail fuel volume growth across the network? I think your response, Javon, to an earlier question mentioned that There's no change in the board pricing strategy. I'm just wondering what other specific initiatives you're going after.

Yeah, I mean, it's definitely important to stay competitive and we continue to do that. I think the opportunity we have now with the business being run on an integrated basis is to do a little bit more around marketing consistently shop. So, you know, in the past, you've seen Coles Express run in-store promotions We've run fuel-focused, forecourt-style promotions and they wouldn't necessarily be lined up or coordinated as well as they could be. So I think there's definitely an opportunity to do more of that in a consistent way and start to link fuel purchases, the shop, buy fuel, get coffee, those sorts of offers. We tried a few things. November, December, we ran a double docket campaign where we took the four cents, dropped the docket and effectively doubled that eight cents for a limited period leading up to Christmas. Probably wasn't as, didn't shoot the lights out, but it wasn't as amazing as I'd hoped, but delivered some really positive results. We saw 28,000 lapsed customers return to the shopper docket program and return to stores and obviously the flybys program and the flybys data really helps with being able to understand the success of some of those initiatives. So I think we'll be out there in the marketing space. We'll continue to try some different and hopefully some edgy promotions both in the Express Network and across the OTR offer as we start to roll that out outside of South Australia. So watch this space I think is the message.

Okay, thanks, folks.

The next question comes from Gordon Ramsey with RBC Capital Markets. Please go ahead.

Thank you, and great results, gentlemen. Just interested in the military clean fuels and your view on that market and whether you believe pricing will be at a premium for low-sulfur, 98-octane gasoline, and other products that you're going to be producing under the new standards. Just your view on that market, do you think it's relatively tight?

Yeah, I think there's a possibility that it will be a difficult product to source in an increasingly tight market, which obviously will blow through into product frenzy. It is obviously two years away, so a lot can change in the next two years. It's a little bit hard to forecast that, but certainly it's a high spec. We're falling in line with where global specs are going, so it's quite a bit as available on the market, but any type of specs can generally lead to higher product premiums. So I think there's a real opportunity for that in a couple of years' time, would be refining project next time.

Oh, thanks, Scott. I'm sorry I got a cold. My voice is deep. Just on the commercial industrial side, in the investor day, you made it pretty clear that to get to the long-term goal that you have for that business, it's obviously performing very strongly right now, would involve an acquisition. Are you still thinking along those lines that it would be similar to, like, a polymer business where it's a bolt-on acquisition that fits in really well with the business?

Yeah, we're not in here with this today, so I might send that one over to him. Yeah, thank you for your question. Yeah, absolutely, Steve, very consistent with what we announced at the end of last year. We continue to grow our data and business, but we have in mind our aspirations for a 500 billion dollar business, you know, in a sustainable manner. And we are working on a few potential targets on acquisition and repeat the criteria, we definitely want to have acquisitions that have very good strategies, taking the opportunity to continue the diversification of our portfolio, as we have done, as we just mentioned, with our practice division, and potentially a bit more of geographic footprint as well. So, absolutely, a core part of this strategy that the continuous growth on our existing business. Obviously, we cannot reveal a number of targets that we are working on, but this is pretty much in the agenda. We hope to get something in the next two or three years.

Okay. Thank you very much. That's good.

Our next question comes from Mark Liveman with Macquarie Group. Please go ahead.

Yeah. Hi, Scott, Jovan, Carolyn, and Shane. Thanks for the update today. I had a couple of questions. Firstly, on the CNI business, really strong result at the clutch is largely held on for those first half profits. I wonder if you could just comment on the outlook into 2024. Do you think you can hold this level of profitability and sort of grow into that 500 million run rate over the next several years? Or should we anticipate a bit of a pullback in that level of profit in 2024?

Thank you, Mark, for your question. But that is the objective that we have been given as a team. It's just enough to move backwards, so hopefully we continue to grow. More seriously, if you look at the volume growth that we had in 2023, all in all, it's about 13% growth in volume, 40% of that coming from recovery, If you remember what we discussed during the investor day, the tenure of our contracts is something very important. We have a high quality customer base and very loyal customers. So all these things that we have accumulated in the last few years, we continue to see their fruits in the coming years. From a recovery point of view, in 2013, we typically received a bit of recovery to come. If you look at our aviation volume, spectacular growth in 2023 year-on-year of 40%, but still 45% below our pre-pandemic level. So there is still some recovery to happen in international aviation, particularly with our Chinese customers. So we believe there are definitely a number of elements are making us very optimistic to continue to push the business on the same trajectory we have seen in the last three years. And this is probably another element. This growth has been very consistent for the last three years. Our pipeline is very solid. And we have acquired a large number of new strategy customers. Some of them have been disclosed. But we have many more in our pipeline as well. So, we believe we are definitely in the great position to continue to grow. And the last element maybe to give you is the change of mix and the weight of the market. of specialty business, pretty much close to 40% compared to pre-pandemic. And auditing from a niche perspective, not only brings resilience to our business, but it's changing our earning profile. So combined with some potential acquisition, yeah, we believe we'll continue to grow and we want to be very optimistic about 2024.

That's fantastic. Thanks for that detail. And just a smaller one. I just wondered if you could give an update on the LNG import terminal at Geelong. How's the engagement with the Victorian government and what's the update for that project, please?

Yeah, sure. So, we, largely untrained from when we spoke about it yesterday and that as we're working through the various additional studies that we require to do under the Environmental Approval So they're progressing well and they're in completion and that impacts us to the next milestone which is to resubmit to a panel for the final stage of the environmental approval process. So we sort of see that running, the process continuing to run through the course of this year and I think we remain positive about the project. We see the business case. a very strong business case for that project in Victoria to meet the living gas supplies and shore up energy security. So we think it's a great project. It's going to be needed by the state but at the same time we've got a process that I'm not sure the government will see that out and then following that once we've secured environmental way to go through that project over the course of this year.

So it sounds like FID would be 2025 at earliest. Is that reasonable?

I think that's reasonable, yeah. Assuming it progresses well and we continue to progress the project through the approval process, it will take most of this year, I think, before we conclude that and take it into 2025. So that's obviously a bit in their hands as well. But I think that, from a planning perspective, that's probably a vehicle and how you should think about it.

Great. Thank you.

Your next question comes from Henry Mayer with Goldman Sachs. Please go ahead.

Good morning, all, and thanks for the update. Just want to dive in a little bit more into some of the commentary around the supply chain and tax from shipping disruptions. And perhaps around the VTOL supply agreement, can you touch on whether you'd expect to offset some of those supply challenges through the clean, dirty spreads? You pick up on refining, please.

It's more about how we think about managing the highest shipping costs that we're seeing at the moment.

Yeah, if you'd offset some of those challenges in the refining segment as well.

Yeah, I mean, so obviously the refinery benefits from the clean, dirty spreads as part of the refining margin, so a higher spread of benefits for refineries and so often there's a bit of an offset in our business from our shipping costs. Our shipping costs is a potential headwind for Dean's business specifically, but it's generally an offset within the refining business from the things that we get from the Clean Goody Squares. That's the benefit of having a diverse business, I guess. But as I said earlier, there's also a lot of flexibility within the commercial business to pass on increased costs over time. There can be a lag in seeing that pass through to the market, but our contracts just get up in such a way that we have a lot of flexibility to cover those sorts of variable costs. So I think we have to say right at the beginning, it's a feature of the market at the moment because it's That can change quickly as well, but at the same time it would be great to be able to manage it and there's upsides and downsides within our business from that sort of change. The arrangements with vSolar are certainly helpful for us for a lot of the contracts that we have. The very large contracts that we typically enter into on multiple years, we typically will lock in back-to-back arrangements with VTOL so that the risk associated with these sorts of changes is then not with us and we have a more certain margin that we can expect to generate from those accounts. So that does cover a lot of the CMI business that VTOL manages and provides a lot of protection for us.

Great. Thanks, Scott. And maybe just to stick on the refining scene, are you able to share perhaps what the refining life has been like in January so far? You talk about the refining back in capacity. Should we assume that you've cleared out the inventory of partially refined products and you're back to 2019 slate levels as of Jan?

Definitely. It's a clean start to the year. We sort of partied up all that last year. And it's also been kind of refining large and tight markets, general support of refining. So, yeah, pretty happy with how that business has kicked off here and talking forward, very optimistic about it as well because we've got a pretty clean year from a major maintenance perspective and should have an opportunity really to run pretty hard and enjoy whatever environment we face them through, which at this point in time looks pretty good.

Great. Thanks, Glenn. If I can clear that up a bit. really strong performance from the DNI again. We've touched on it a bit. I think in the past few results, you've been cautious to flag that that could be repeatable, and the language around that has changed a bit now. Could it be the case that this 500 mil target over the next few years is conservative, or is that still sort of a reasonable target to be working towards from this year's results?

Yeah, I'll look at it. I'm going to hold it. Thank you for your comments and I'm sure we'll take that on board when we have to design our objectives for the next few years. Again, the fact that I was saying before, I think there is a very strong demand in the market and we see some positive momentum, for example, in the mining industry in the next few years. So we have a number of sectors that are really good fundamentals in terms of sectors economy and we certainly benefit from that because we have some position on those sectors. business in a sustainable manner and that's the reason why an acquisition strategy is important to make sure that even in times where they could be a bit more advanced, we would still be in a position to repeat that performance. Whether the $500 million is conservative, this is our first target, and we want to get there in a sustainable manner. If we get there sooner, then we'll reduce our strategy for the future. But that's definitely our first objective. But I'm glad people think we are a bit conservative on that beat, actually. Yeah, I mean, it's a very different story. I think it's a much improved business for a long, long time years ago. We're mostly focused on our sleep spots and areas where we have competitive advantages. We have built a really high-quality customer base with lots of opportunities to grow from those customers and grow with them. That's a big feature of Denny's portfolio, which is really quite diverse now. Organically, I think we're in a strong position. As for that, there's some known There's obviously a known uplift that we'll see from the OCR group acquisition, and that's completed this year. That flows into the commercial business as well, in terms of the wholesale division of OCR. So, yeah, there's clearly a clear career strategy to $400 million to $500 million. The aspiration is to deliver that sustainably year-on-year, so we get there earlier, it's more about

The next question comes from Rob Coe with Morgan Stanley. Please go ahead.

Good morning. Congratulations on the result. My first question is just a quick one about the CAPEX and with the fuel quality standard for aromatics coming in 2025. Does that require any CAPEX for you guys? Is that included in the CAPEX budget?

Yep, I'll take that one. Thanks, Scott. So the fuel quality standards, I think you're talking about the ultramarine, sulphur, gasoline quality standards, the aromatics, and we definitely have included that in our 2024 guidance, and that will come into play in 2025. So we'll see some capex across those two years.

Okay. So some capex for 2024 and 2025 for the aromatics, right? Okay, second question. Yeah, yeah, thank you. That's very clear. The second question is just about the remuneration report, and congrats on the result there. I don't think anybody's got any complaints about that. The return on capital employed came in at 26.4%, and obviously you don't disclose the targets going forward for commercial reasons, but just Could you give us some colour on any of the drivers that go into that? Do they get reviewed because of rising rates? Obviously, capital employed will go up with the acquisition. And, yeah, just if you can give us any steer on that, please.

Yeah, I mean, they do get reviewed probably every year when they're set by the board in terms of the grants that are made for the following three years to reflect, obviously, our changes in our action. and our anticipated capital investment program, particularly in terms of the areas we were looking to grow, which is becoming a big feature of the forward capital banks now, both in retail and commercial business. So it's a bit of a reflection of both the cost and the opportunity, rather than setting a target that reflects both those elements and provides a sufficient stretch for the executive team

Okay, sounds good. Just a final question. I guess Mr Errington alluded to this, but it is serious and having covered utilities for many years, unfortunately there is such a thing as making too much money in this day and age. Can you just give us a sense of how you're gauging social licence risk for the current cost of living initiatives going on by government and you know, if you have a crisis management team on retainer or, you know, just, you know, it's not necessarily enough to just keep your head down and keep on with business in this day and age.

Sure. I totally understand. And I know we're very focused on that through the course of last year, particularly with respect to the retail business, which obviously is focusing on consumers. And... and wanting to continue to provide real value to customers for a challenging time. So that reflected in, obviously, making sure that we remain competitive and providing that value to customers, but also investing in products like the ones that Jovan touched on that we did towards the back end of the year to provide double discount, double docket discounts for consumers for a period of time, providing opportunities for those that are looking for opportunities to save through be able to do that in terms of their relationship with us. So, you know, I think now we've got full control over the network and the comedian software and obviously we basically are coming on board as well. I mean, I think that is, we'll certainly be on top of the line and we'll continue because we'll have many more leaders to be able to In terms of our general preparedness for crisis, I guess it's something we do prepare for, we do train for, not just in these sorts of reputational issues but all elements of the risks that we face them through, whether it's operating risk or cyber risk and so on. A lot of effort goes into that and we do train for that regularly and have access to people who support us in the event that we need best support.

Okay, great. Thanks very much. Sounds good. Good luck with it.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone. Your next question comes from Scott Ryle with Remakerity Research. Please go ahead.

Hi, thank you. I'll probably do a very quick one for you to finish off. I'm just referring to slide 21 of your pack, and I'm interested in your view around What makes for a premium EV charging station as opposed to a normal one? I think from your press release, you're referring to the fact that there'll be sites where you've got very strong convenience and maybe restaurant offerings that need to give a bit more colour on that one. And then the other one... How does a vehicle emission standard impact your thoughts on the refinery investments that you're doing at the moment, please?

Jerome, would you like to tackle the EV question?

Yeah, sure. Yeah, I mean, it's really a couple of things. I mean, you touch on the point around convenience. So it's making sure that where we've got an EV charging offering, we've got a convenience offer that supports it. And that will be a little more focused around the OCR style convenience offer going forward and trying to align sites that have EV charging with the sites that are actually converting to the OCR offer. So that's the first point. The second is making sure that the EV charging offer itself is something that works really well for customers and I know you know this space well but making sure we've got fast charging making sure that there's sufficient space on site and on the forecourt to do that, that there's sufficient bays and the infrastructure and the systems that run that charging offer work really well and effectively without the usual bugs that EV owners seem to suffer when they look for charging spaces. That's what we mean when we talk about premium EV charging offer.

Thanks. On the emissions question, obviously the bit that changes to the vehicle emission standards is designed to increase the availability of low-emission vehicles coming to the market in Australia, and obviously EVs is part of that, and I guess the emphasis through having greater availability of those vehicles in Australia, they will drive and upgrade and transition particularly to EVs over time. That's obviously something that we've anticipated, and that's what the market change that we've anticipated for quite some time. In terms of, and we're just trying to invest in convenience and EV charging facilities for customers as well to try and meet that growing market demand. In terms of the investments in the refinery, you know, I think the refinery's investments remain resilient in a world where we've got greater EV uptake because at the end of the day, the 80% of Australia's fuel demand So, fuel demand has to decline a long way before the markets for recline production are impacted in Australia. So, the life for the refineries is quite a long one and from a supply perspective, and obviously there's a particular key role to play in energy security as well, which has only become very prominent through the pandemic. and that's been foreshadowed in the past. We still see for the next decade that refining and the supply-demand balance for refining can remain quite tight and should be overall largely supportive of refining ushers through that period.

Okay, that's all I heard. Thank you.

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

Look, thank you very much for taking the time to join us today. I think I'll just close talking about the area here. I think it's a very exciting year for Beaver Energy with the strategic agenda that we've got having completed the Coles Express transition last year and not far from completing on the OCR transaction. We've got a lot of other platforms in place to really accelerate our convenience strategy and the transformation of our retail business It's very much a year of focus on execution. A lot of work going into obviously managing the transition of those systems as well, bringing together the integration and moving forward with the rollout of the convenience software across the network and really accelerating the product that we have in the retail market. So that's exciting and commercial. It's maintaining the momentum that we've built up now over a number of years. The acquisition of the OTR, Wholesale Division, will be A material one will really help to continue to build our presence in rural and regional Australia. As an example, when it's getting touched on, we continue to look for other opportunities to build on what has become a really strong capability in our commercial industrial business. And refining, a clean year ahead, a good start to the year in terms of the original refining marsh environment. Obviously, a lot of work happening to prepare for next year in terms of the upgrades that I saw for gasoline. But that's going well, and opportunities are really turning, I think, a good result in refining in 2024. So, yeah, big thing for us is execution, maintaining focus on customers, and delivering on our promises. So looking forward to talking to you a bit more about that at the half-year point. We've got the first half behind us. But thanks again for joining us today and for your questions. Much appreciated.

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