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.