Vivo Energy plc

Quite exciting to be here after eight months, believe me, of hard work. Before I go into that, if we could please move to the first slide. Is it there? Because I don't see it there. But anyway, it's there, I presume. I trust you. This is a very good example. But what we've done since we inherited this fantastic brand from Shell, this site is in Ghana, in Accra, in a you know, middle class, upper middle class area. This station three years ago, believe me, it just had fuel and a derelict shop. And believe me, it was derelict. Today it has about 11 offerings. You don't see them all there. But in the center, you will see the welcome shop, which is the orange bit. On the left, you have a hairdresser. On the extreme left, you have a pharmacy. Then when you go to the other side, you have a fantastic KFC. And then when you go to the other extremes, there are three ATMs. Three big brands of banks there. Then you have somebody selling water by the gallon or by the 20 litres. You also have somebody selling fruit and veg. And then you also have somebody valeting cars. And then when you go to the extreme left, you have services to the car. Tyres, balancing, lubricants, washing, etc. These 11 or 12 extra services are there and generating revenue, and I won't tell you how much, before we even sell a litre of fuel. So that is the fundamental change in the way we do business. We didn't have that six years ago in vivo. It was just peanuts. And today that is growing at 100 miles an hour everywhere across our countries. And when you think that we have today 2,100 sites, believe me, it's very exciting. So if I can go back to serious matters now, I'm not going to read this. I think you've all read it before arriving. And if you could move to the agenda. So I'll start by doing an introduction and do an update on the business, pass the finance to Johan, who is better qualified than I am, and then I'll come back and do a summary of the Monday. It should take us about half an hour if I limit my speaking, and then we will be open to questions and answers. So first slide, Vivo Energy today. Well, believe me, we've had a very busy year. We started by floating this company and putting it on the market and going from private to public. It was challenging, hard work, costly, but we're there. We're there. It works. We had a board yesterday that approved our accounts and the whole thing is well governed. And our auditors, our bankers, our partners all considered that we have done a first class job and we're very proud of that. Believe me, most of my gray hair comes from that. In order to increase our pain, we decided to roll out a new ERP system, SAP for HANA. It is the Rolls-Royce. We didn't pay the price of Rolls-Royce. Believe me, we paid the price of a Ford. We negotiated well, like we usually do. Two countries were rolled out last year, big ones, Kenya and Uganda. And yesterday, on Monday, we rolled out another four. It is working. We're delivering, we're invoicing, and we're actually even collecting money, which is fantastic, out of three days. So the system is in four other countries. By August, everything will be done, the 15, and then we'll be able to sit down and address how we're going to bring over the engine countries, the eight, to this new system. They're already on SAP, so the migration will be less complicated than before. The engine deal was three-dimensional, complicated. We restructured it and we brought it on board on last Friday, 1st of March. The eight countries that came on board, there were nine, but one was in Kenya, so we're not double counting, but eight new countries, but It's fantastic because now we have a population of 450 million we can serve. We went from 300 to 450. Believe me, that's 45% of the African population. That's not a bad target to go for. This has cemented, all these actions have cemented us into being one of the largest independent companies when it comes to downstream in Africa. I mean there is only one in front of us and he's a multinational. We're the only Pan-African company and it's a good position to have, 23 countries and a good base, a good platform to build 2019 and onwards. If I can move to the next slide. Well, we promised and we delivered. It was a successful year. We worked hard at it. Believe me, we had headwinds, but we also had our own resources, our own reserves, as I would say, which enabled us to counter these headwinds, and you know them, we talked about them. They came from the northern part of Africa, they came, some of them, from the eastern part of Africa, even the western part of Africa, be it supply, be it pricing, be it otherwise, but we countered it. Why? Because we have a business that is diversified, that is enabled us to absorb these hits and move forward and that is what happened and it enabled us to deliver to deliver an adjusted EBITDA of 400 million dollars right so well we promised we did it for the first year we're quite proud therefore it proves also that there is a value and we kept saying it from day one that there is a value in this diversification of our portfolio there is a value in the diversification of our business be it commercial lubricants or retail and now food and otherwise so that was a successful year and of course we have recommended a dividend payout of 30 percent of our net income as for the first eight months we didn't we were not public for 12 months eight months don't forget in line with what our policy and also in line with what we have promised as i said delivery against our commitments well not only did we deliver the the top line targets which you've just heard but we also delivered against our targeted openings. We opened 88 new sites. We opened 119 fuel, non-fuel activities, food and otherwise. The QSR, the quick service restaurants, are fundamental to our business through joint ventures with Kentucky Fried Kentucky Fried Chicken and others. This is the way forward. We have created these JVs in order to fast track and you have already some that are rolling, precisely two and more to come. Why? Because it enables us to occupy that space and to move fast. Our competitors are not moving as fast and our model is better and it is moving fast when you see the number of openings. Just to give you a highlight, in Morocco last year, not only did we open 14 new retail sites, but they opened 30 QSRs. CR and QSI, which is massive, believe me, by any standard. Our EFP system, I mentioned it, four countries so far this year, two last year, and 15 by August. Of course, we carry on focusing on on health and safety and security of our operations and of our people. It is fundamental. We tragically lost an employee in Morocco last year through an accident at a client's, something that is not under operational control, but in an accident, gas ignited and he lost his life 15 days later. It happens, but we refocus, we analyse what happened and we make sure it will never happen again. That's how we go about it. There was a lot of investigation, a lot of analysis, And then we spread the experience and the knowledge from that incident. I think now it is easy for me to hand over to Johan because he will speak for the next 15 minutes. Thank you very much.

Thank you, Christian, and good morning, everybody. If we move on to the next slide. For people in our business, we report and we run three different segments, retail, commercial and lubricants, with retail still the biggest accounting for about 58% of margin and EBITDA. As you can see, all segments show growth. Last year, retail was at 3% year on year and lubricants and commercial 4%. Just to put a bit of context around the market growth in Africa, we were across Africa showing a growth just above 3%, which was clearly a bit below the previous year where we actually saw market growth of close to 7%. So basically, we maintain market share and our growth, including retail, is in line with the market. You can see total volume of over 9 billion litres, which is 4% and our operating leverage is again at work showing an adjusted EBITDA growth of 6%. So very strong results. Now moving into some of the KPIs of our financial position you can see the volume growth growing at 4%, gross cost profit at 2% as You're all familiar that we had some headwinds in Morocco, which slightly reduced the unit margin by $1, and so that's the effect there. Having said that, EBITDA growing at 12% and adjusted EBITDA by 6%, the main reason being that the specials that we had in 2018 were lower than the specials in 2017. We had about $34 million of specials, which the bulk is related to the IPO and the engine transaction. We also talked about our tax rate at IPO that we aim to bring it down to the mid 30s. You can see that we're currently at 36 percent and so on a good trajectory. And then finally, we continue to deliver and you can see that our net debt dropped by 13 percent as we actually continue to pay down our amortizing debt and actually paid back eighty four million dollars last year. So overall, we're very proud and happy to show these results to you today. looking at the adjusted EBITDA trend not just over the last year but also since 2015. As Christian was mentioning, very strong performance in both lubricants And commercial lubricants up 21%. This is mostly driven by the acquisition we did at the end of 2017, where we actually bought 50% of Shell Vivo lubricants, the manufacturer and our partner in the lubricants business. So we're actually taking a bigger share of the value chain, which is reflecting in that growth rate. Commercial up 14% year on year and retail flat on a year on year basis. It's also worth noting, that the trend continues to be positive. And if you look from 2015 to 2018, we actually added about $160 million of adjusted EBITDA. $85 million is coming from retail, but $75 million is coming from commercial and lubricants. So that segmental diversification is fundamental for our business, and you can see it here in this slide. The next two slides, I'll highlight the retail business and performance. The slide on the left you're familiar with we show here the cash gross unit margin for retail going back to 2014 but also for the last four quarters. As I mentioned the retail margin had pressure last year and we all know the reason is the Moroccan dynamics where we went from seventy eight dollars to seventy five dollars so that's a four percent decrease. But more importantly you saw still a strong performance in Q1 and Q2 and you can see from Q3 onwards that the pressure really build up and we ended the year at seventy one dollars. But despite that you know we were able to deliver growth in our earnings and more importantly On the lower hand side, on the right hand side, you can see the dynamics of the geographical diversification, where on a total gross cash profit, which was flat year on year, Morocco unfortunately contributed to a decrease of 7% of that. However, the other countries stepped up and delivered 6%. as well as to Christian's point of the non-fuel offering, which continues to grow, which added about $4 million to the grass profit, which really shows the resilience and the quality of the earnings across Vivo Energy. We also, in the regulated markets, had five price increases or margin increases across our 12 regulated markets, which again allows us to maintain that margin in regulated markets. Just to highlight two of our main drivers to build a retail business. One is non-fuel and there you can see that in the last three years we more than doubled the gross cash profit from non-fuel retail going from 12 million to 25 million dollars. It went from 5% to 6% of our total gross margin. However, if you adjust that and exclude the dodos where actually we don't have any offering, we're closer to eight, 10 percent of our gross margin coming from non fuel retail. So we continue to invest in that. And then the second point to make here is our premium fuels. As you know, this is V power, both diesel and gasoline, where even in regulated markets like Kenya and now also Tunisia, this product is deregulated so we are able to price it at a premium and you can see here the year on year growth rates for V-Power in four key markets with Morocco, Ghana and Kenya in the 20% and Uganda in the teens. So again, the way it works is that we increased, we now have 80% of our sites in Morocco selling V-Power because we actually have to invest in the different sites to make sure they have the right tanks and the ability to fuel that so we continue to invest in that. Now moving to commercial. Again this is a similar slide that we use in the IPO. We have two segments. We have the core accounting for about 73 percent of our volume and then we have what we call aviation and marine which is more opportunistic and more volatile. You can see overall growth rate 4% in commercial business, mostly driven by aviation and marine, reason being that we were able to win quite a few aviation tenders, but also focused more on the bunkering business where we were able to provide the right fuel at the right place at the right price, most importantly. So that really drives the volume. The margins across commercial were very strong, both the core commercial and aviation and marine, showing a margin of $47 per thousand liters. which resulted in the EBITDA increase of 14%, so a very, very record year for commercial business overall. The third segment is lubricants, showing growth in line with the market 4%, retail B2C slightly higher, commercial 3%, and then margins were actually overall 10 percent lower compared to the previous year. We talked about it both in August and in October at the Q3 results that we still were struggling with the base oil increase. I think we have now turned that corner and we kind of see a recovery of the margins going forward. You can also see there's a bit of more stickiness in the B2C channel where it's actually a bit harder to change the prices. So once we manage to do that, we'll be able to reap the benefits of that. But it takes a bit longer because the car mechanics are not keen to change their prices every week. But overall, a good performance. And as I said, this excludes the Shell Vivo lubricants because that becomes that's really below the gross margin. It's an equity pickup as we own 50 percent of the business. Now, moving on to CapEx. We continue to invest in the business. Last year we spent $147 million in CapEx, slightly higher than the previous year, the main driver being the ERP rollout. So that's really the driver behind that. I think important to note that the ROACHE that we continue to spend the CAPEX wisely. We did not change our guidelines in terms of required IRR for both commercial and retail and you can see that the ROACHE of 23% is also in line with previous years. Now it's important to get returns but also to get cash flow. You can see the cash flow on the next page. Adjusted free cash flow was around $150 million, an 8% increase. I think the working capital in the results was a bit confusing but we actually still were able to generate cash flow from our working capital, about $36 million, a bit less than previous year. The main reason being, and we mentioned that also in August, We had some buildup of government receivables based in two countries in Botswana and Senegal where the government, although it's a regulated market, decided not to adjust the prices in line with the oil price movement. So basically they imposed indirect subsidies which was funded or is funded by Total and people like ourselves. So we had a $40 million increase in that receivable due to these two countries and we expect You know, now that the election in Senegal is done and also in Botswana, we already recovering that money. That's again is something that we expect to normalize going forward. And also so overall, very, very strong cash flow generation, not only to invest in the business, but also pay down our debt. So the cash element is still going very strong. Leverage. As I said, we continue to deliver net debt. stood at 318 million dollars, which is just around 0.8 percent of adjusted EBITDA, which is again in line with saying we will not go above 1.5 and continue to deliver. One of the main reasons here, in case you wonder, is we do want to keep our flexibility and our balance sheet healthy in case that any future acquisitions come our way, that we have the ability to both use debt and equity to go after bigger deals. So that's the reason why we continue to be conservative on this end. We also upstreamed $140 million of dividends from the countries. So again, we don't have any trapped cash and the cash keeps flowing from the countries as shared previously. Last but not least, guidance and an outlook for 2019. Clearly, we have Engine coming on board. Engine will be part of our business for 10 months. It was announced on Friday. Given also the moving parts of the business, we decided to scale back our guidance and really just give guidance at a group level where we look at total volume, total unit margin, capex and sites. As you can see, volume Given specifically, you know, for Viva Energy, we continue to be at the guidance that we said of four to five percent volume growth. And we'll also have the engine volumes coming on board that will be to the low to mid double digit volume growth for this year. In terms of gross margin, cash gross margins, our guidance is high 60s, which is slightly lower from the low 70s at IPO. And the main reason is Morocco downward pressure margin. as well as, compared to this year, a slight lower commercial margin going forward. Capital expenditure for both groups, for both entities, both Enjin and Vivo Energy, around $150 million, which is as per previous guidance, and then continue to invest in new sites with the aim to add 80, 200 sites in 2019. I'll now hand it back to Christian for concluding remarks.

Thank you, Johan. I won't read the moving. Yes, I won't read this slide. I think it's self-explanatory. But in summary, we had a very successful year. We're very proud of what we've achieved and managed to deliver. Despite some serious headwinds, we remain focused on delivering our business, both on operational, HSEC and financial. That is how we do it. and we will continue doing that. We talked about diversification, which helps to mitigate headwinds or country-specific impacts. Well, let's talk a bit about Morocco and what we control in Morocco. In Morocco, what we control is operational. It was a strong year in all segments. from retail all the way down to marine, aviation, lubricants, food and otherwise and we saw growth and market share growth in all these segments. So that was very pleasing to see and it enabled all the other segments to bring the necessary hedge to the vulnerability of retail which was under attack. On the retail side, at the same time, we grew our footprint. We added 14 new sites and we added also non-fuel. I mentioned earlier on 30 openings, which is, believe me, not a small activity. 30 new openings in non-fuel is a big... We also increased our market share and we also increased by 50% the number of sites in Morocco selling V-Power. So the ramp up will come in 2019 because we started working on that from June of 2018 and that will now come as a full benefit in 2019, the V-Power. And we will also launch a V-Power gasoline in 2019 and that will also bring the full V-Power proposal to all our clients. As I said earlier on, and Johan I think mentioned it again, commercial did what it had to do in 2018. It brought what was necessary and it brought strong volumes and strong margins in Morocco for aviation, for LPG and for marine. That was a good delivery and allowed us to remain strong. The market conditions are what they are, and the industry is adapting and accepting, I guess, lower margins. The lower margins don't come now from government. They come from the market, the population, social media. So you have to manage that. You have to make sure you remain smart, protect your market share, protect your position, and make sure that through value propositions, be it through vPower, Food, QSR, you name it, you bring the necessary value to your customers so they continue using the Shell brand. And it is the case. We have very strong loyalty through also our loyalty cards. We have 600,000 members that are using our loyalty card. And that's a very strong position to have. So nine months after talking about re-regulation, price capping or no price capping, no change. Business as usual. We carry on growing our business. We carry on investing. We carry on doing what we have to do. But of course, there has been pressure on and an impact on our retail margins. That's a fact. And we live with it. We've absorbed it and we move on. The Competition Council, which was appointed by the King at the end of last year, did its work, came out with a ruling and said, gentlemen, this is the framework, this is where we live, this is the law that was put in place by government and it cannot be changed. All of you have to learn how to live within it, be it government or you, the players. And there is nobody that is the good boy or the bad boy. and we cannot change it or break it and mr government you cannot go by decree trying to impose this and put this so since then there has been coming down of the rhetoric and and people are talking now with a more conciliatory message and i think things will come down uh there is a massive political agenda which you all know very well uh and we were not targeted uh it was uh targeted to players who were close to this or that. But I will not comment further on that. We also have moved on. We have engine that has come on board and that brought additional hedge, I would say, to our business. And therefore, that diversification of the portfolio also through the engine business enables us also to be more comfortable. The engine transaction, well, first of March, it became part and parcel of Vivo Energy. We're excited. There's a lot to do. Quite a few of our teams have been there since Sunday. And we're now going to, in the next months, try to decipher, understand, more completely what we have seen from a distance when it comes to people, opportunities, drivers, et cetera, et cetera, how to put in place the necessary vivo energy model so that we can deliver the value which we have created in vivo a couple of years ago. We will now reproduce it or replicate it across the engine perimeter. Zimbabwe is a country where we've entered for the first time. It is a nice big country. We're in a challenging environment. We have to use what we can. We have the possibility to import products. with a one-to-one parity versus the dollar, which is good, and we have been doing it. We have today 15-day stock, so there is no panic. And every time we can, we buy dollars through letters of credit, confirmed and irrevocable, and we bring in products. And that's what we're going to do, and replace it and replace it. And we're going to make sure that we grow that business, because that country ultimately will be normalized. Is it going to take one day or one month or one year? I have no clue. But basically we are going to use all our energy resources in order to make sure that we are ready to grab the opportunities that will come in that country when everything will be settled so that we can grow our market share and our position. I think next slide please. 2019 brings an expanded footprint, an expanded opportunity for us through these eight new countries. It will increase our addressable market share by 22%. You know, it brings virtually the engine perimeter brings us a footprint that is equal to what we sell. It's fantastic to have. So even if we go for our normal market share, which is about 23%, well, that's basically going for a volume that is superior to what engine brings. So it just proves that there is more to come. and more to grab we will do that we will use the engine brand to its maximum it is a good brand it's like shell brand was early on a bit dusty we will clean it up and we will make sure it delivers what it has to do but again uh the the business in engine is 50 50 i 50 commercial 50 retail well we are more used to having more retail so we will build the retail offering and bring what is necessary around it. We'll of course continue developing the commercial side because in some countries they're fairly weak in mining, so we'll go after mining. Believe me, we won't let it go. And basically we will also roll out our systems, our model, our manual of authority. We will empower people. We will make sure that they are focused. We will make sure that our scorecards are in place. We will reward, recognize people. We will change people. Move them around. Inject new blood through Vivo Energy and move the people back into Vivo Energy. All that to create a breath of fresh air within all these companies in order to bring a new dynamic and a new movement. We believe there is significant opportunities in these countries and we will grab them, I assure you. This business delivered $33 million of adjusted EBITDA in 2018. We will have it for 10 months so it would be prorated in our figures. Innovation, I talk about it. It's fundamental. When you look at doing business, it starts by, I guess, the best fuels. Premium fuels is fundamental because that's how you differentiate. You make sure that you have an offering that is top of the class and top of the brand. We have to focus on that and we have to make sure that it is everywhere. So that it is your image, your quality image, your number one image. And that is what we're going to do. To bring down quality, efficiency, and of course at a premium. We don't put it there for the same price. Also, the non-fuel partnerships have proved that they are what people want. We use them in order to build loyalty, in order to decipher what clients want through the technology we're rolling out. So better data analytics, all that enables you to know better what your clients, your consumers want today and tomorrow, and therefore bring it to them when they walk in or when they think of coming to Vivo. Energy efficiency is something fundamental, and we started it two years ago, and basically there is no site in Vivo Energy now that is built that doesn't have that component, be it the walls, the glass, the lights, the equipment, the fridges, the air coolers, the roofs, the solar panels. In some of our sites now, 60% of the electricity that is consumed in a site is produced by us. So that is a big game changer. And the cost, the unit cost is insignificant when you take it into account from day one when you build the site. In order to add it on, it's more costly. But when you start and when you think that we're bidding about 80, well, it'll be about 100 a year. Well, we will quickly have quite a few that will have that footprint. The ERP Optima SAP for HANA, that brings, it is a game changer because you basically are able to see before the end of the month. You can see today instead of waiting in closing. You can therefore analyze better. They do diagnosis better and therefore interpret better and therefore bring better solutions to your clients, to yourself, efficiency and otherwise transport optimization. All that enables you to ramp up your solutions because you can plug in more and more solutions around this ERP. We went from having something that was a Ford Model T to something that looks like, I'm not going to say a Rolls Royce, but I'm going to say, what can I use? Tesla. Yeah, Tesla. Solar energy efficiency. So we have a Tesla that has more than 500 miles range. But that is where we are now. Something that is a solution for tomorrow and that can be upgraded all the time. And we did not take a bespoke solution, believe me. It is a standard solution. We don't want in five years time an upgrade that will cost us $20 million. Loyalty is fundamental. We saw the success that happened in Morocco. We're now reproducing it in Kenya, Cote d'Ivoire and Ghana, if I'm not mistaken, and maybe I forgot a few. That is the way forward tomorrow. And by having partners around you, the reward of the loyalty is through your partners. That's fundamental. Site automation, it enables you to go from the ERP to the client to make sure that you know what the hell is happening. It means that if your dealerships now are weak and they don't have the cash flow for a reason or another, no problem, I'll put my stock. But at least I know my stock is there. I know what I sell litre by litre and I know that I have to be paid for that litre. That enables you to take calculated risks and to have solutions that enable you not to have anything dry. Wet, wet, wet is our motto. I think this is my last slide. In summary, please. As you can see, we're still passionate. I represent the group, but believe me, there's quite a few others that are as passionate as I am. We love our business. We believe it has colossal potential like the continent. We will ride with the continent. We will ride with our clients. and we'll make sure that we deliver, we extract as much as we can, and we have our fair share. Vivo Energy is in Africa, has been in Africa through the Shell brand for more than 100 years. It will remain there. We will have to integrate successfully engine. There's no other option. It is fundamental. We will do it. And finally, we will continue innovating. We will continue diversification. because that is a natural hedge to our business and it will make us stronger and better to to be ready to face headwinds we will always have headwinds be in morocco or otherwise it comes every day it's part and parcel of our business and we have to be ready to fight it or to counter it thank you very much and uh the floor is yours for plenty of questions and answers for our part thank you yes