Viva Energy Group Limited

Thank you for standing by and welcome to the Viva Energy Australia first half 2024 results webcast. 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 everybody and thank you for joining us today to discuss Viva Energy's half year 24 results. My name is Scott Wyatt, Chief Executive Officer of Viva Energy and on the call with me today is Carolyn Pettick, our Chief Financial Officer and Jovan Buzo, our CEO of Convenience and Mobility. I begin by acknowledging traditional owners of the lands on which we are collectively gathered for this call and pay my respects to elders past, present and emerging. As always, let me start with our safety and environmental performance on slide four. Following the acquisitions of Coles Express and OTR Group, Beaver Energy has grown from 1,700 to almost 15,000 employees, predominantly within the convenience business. This has substantially expanded the extent of our operating activities, so we are adapting our safety management programs to reflect this change and apply these across the businesses that we've acquired. Personal safety performance remains stable with the express business achieving a 20% improvement over last year. Process safety performance is strong with zero tier one and tier instance so far this year. In terms of financial performance as set out in slide five, Viva Energy delivered a strong first half performance, growing sales and EBITDA by 6% and 25% respectively. Key drivers of earnings growth were continued strength in our commercial businesses, and the return to full production at Geelong Refinery after prolonged period of maintenance last year. Our convenience business also performed well in the context of cost of living pressures weighing on consumer demand and inflation driving up the cost of doing business. During the half, we completed the acquisition of OTR Group and we are making good progress on integrating this with the other retail businesses. We remain confident that we can deliver $60 million plus synergies over the next three years. The board is determined to pay an interim dividend of 6.7 cents per share for the year, representing a 70% payout ratio of the convenience and commercial businesses. The payout at the top of our range reflects their rateable and reliable earnings profiles and strong cash conversion. The balance sheet ended the period at $1.5 billion of net debt after taking up $1 billion of term debt to acquire OTR Group. I'll now discuss our three businesses in a bit more detail, starting with convenience mobility on slide six. With the acquisition of OTR and the continued network growth across both OTR and Liberty convenience, fuel sales reached 2.4 billion litres for the half. This represents a relatively flat sales growth on a normalised basis and an overall strong performance in a difficult retail environment. As with other retailers, cost of living pressures are weighing on consumer demand, with both fuel and convenience sales in the company-operated network each declining by around 5% over the same period last year. OTR performed relatively better than Express, but both were impacted by declining tobacco sales, which were down 17% across the network. With the contribution from OTR and generally strong margin and cost management, we have been able to maintain earnings broadly in line with the first half 2023, This is a particularly good result given higher transition integration costs through this period. While it has been a challenging first half for convenience and mobility business, I believe we are in a very good position to move forward with plans to grow our convenience business and we remain excited about the opportunities ahead of us. Turning to slide seven, the commercial and industrial business delivered another record result in the first half of 24. Sales grew 9% on last year on a proform basis. with strong demand from aviation resources and agricultural sectors in particular. Defence is also contributing to year-on-year growth, and we remain excited about the long-term prospects for Aviva Energy in this segment. Overall, EBITDA increased by 3% to $238 million for the half. Lower earnings growth relative to sales growth reflected some of the headwinds we flagged in the full year 2023 results, including higher shipping costs and margin mix, but otherwise another really strong half from the commercial industrial businesses. Turning to energy and infrastructure on slide eight, compared with last year, which was heavily impacted by major maintenance, the Geelong refinery operated at near capacity during the first half of 2024. Crude intake was 20.6 million barrels with an availability at 97%, generating an average margin for refined products at US $10.80 per barrel. This GRM was impacted by an unplanned outage affecting feedstock supply to the polypropylene plant. While coastal shipping and energy costs remain elevated, total operating costs reduced to $9.70 per barrel in Australian dollars, supporting an overall EBITDA for the business of $112 million. The investment in the ultra-low sulfur gasoline plant is progressing well, and we are in the process of commissioning the strategic storage tanks. Let me now hand over to Carolyn Pettick, who will talk in more detail about our financial performance.

Thanks, Scott. And good morning, everyone. So let's start on slide 10. So as you can see on the slide, the commercial and refining businesses drove the $90 million increase in EBITDA to $452 million in the half. The net profit on a replacement cost basis increased by 10% to $192 million. Depreciation increased following the completed turnaround last year at the refinery, the inclusion of the OTR group from the second quarter, and a full six months of owning the express business. Higher finance costs primarily reflected higher borrowings in the period. So a significantly lower net capital expenditure in the half, underlying free cash flow was $220 million ahead of net profit. Turning to slide 11, I think it's helpful to look at the convenience and mobility performance as if we had had owned the express and OTR businesses for the same time periods last year. So on a combined basis, Fuel made a positive contribution and this is because higher margins more than offset the 5% decline in sales across the company operated network. Store income was lower as a $7 million impact from tobacco sales outweighed a positive contribution across other categories. Operating costs increased on the back of wage increases, and most significantly, additional one-off costs incurred of up to $13 million under the transitional operating model. As we integrate, we expect to progressively remove these costs, and annual rent and property rates also increased as expected. Company-operated EBITDA for the period was 128 million, and this is before $6 million in lower earnings associated with fuel supply to the independent branded network, where wholesale margins reduced versus last year. Returning to slide 12, as Scott mentioned, the commercial and industrial business delivered $238 million of EBITDA, which is an increase of 3% on the first half last year. Sales growth across several sectors and recent acquisitions particularly the OTR wholesale fuel business, supported growth. Offsetting this were high freight costs, although they have even more recently, and a weaker performance from the bitumen business due to significantly lower road maintenance activity across the industry. The slide 13 sets out the $90 million increase in refining EBITDA compared to the heavily impacted period last year during the extended turnaround. Full production, supportive margins and lower operating costs drove the increase, partially offset by an outage at our polypropylene plant in May, which reduced the available margin for the month. One-offs relate to a product quality claim last year and provisions taken this year. Now moving on to slide 14, we show the bridge from EBITDA to net cash flow of $83 million. Our cash position continues to be managed well. The release in working capital partially offset the net inventory loss over the period, even with the additional working capital requirements associated with OTR from the second quarter. The OTR acquisition resulted in a net cash outflow of $1.04 billion, and net drawings of borrowings and upfront fees totaled $1.15 billion, of which $1 billion related to new term debt for the acquisition. The remainder funded short-term working capital requirements through our revolving credit facility. So the next slide, slide 15, sets out the net debt position of the company and our updated CAPEX guidance for 2024. Capital spend is now expected to be around $500 million, inclusive of transaction costs and net of government contributions. Updated guidance is approximately 10% below our original guidance, reflecting the phasing of expenditure on projects between 2024 and 2025 and, of course, capital discipline in the current environment. It's also skewed to the second half of the year after a little over $120 million of net investment was made in the first half. Net debt has increased from $380 million at the end of last year to almost $1.5 billion at June year-end. This includes refinancing the $600 million bridge facility used to complete the OCI acquisition with a $1 billion new term debt facility, which was successfully placed during the half. We believe the current net debt level positions us within our long-term gearing target of between one to one and a half times term debt to EBITDA while maintaining capacity for growth. Now turning to slide 16, you can see the breakdown of the dividend announced today. At 6.7 cents per share, the interim fully franked dividend represents a 70% payout ratio of net profit from the convenience and commercial segments. This is at the top of our dividend policy range. In the first half, these businesses again delivered underlying high free cash flow conversion, which supported the board's decision. The dividend announced equates to a 56% payout ratio for the group, as net profit for the energy and infrastructure segment is assessed at year end per our dividend policy, given its more volatile earnings profile. The dividend will be payable to registered shareholders on a record date of the 10th of September 2024 with a payment date of the 25th of September 2024. So I'd like to now hand back to Scott to provide a strategic update on our outlook for the remainder of 2024.