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

Thanks. Good morning. It's Alex Meese from JP Morgan. I do have plenty, but I'll restrict it to three. Do you want the one at a time or all three?

Go ahead. We will try and store them in our... Okay.

First one, just with regard to engine, flat performance before you got your hands on the keys in terms of profitability in 2018. Is it realistic that the integration measures that you're going to implement in 2019 can lead to any sort of growth on that 33 in the year? Secondly, also with engine, I wonder if there's as much opportunity to roll out convenience retail and QSR in the engine countries as you see in the Vivo countries. And thirdly, commercial, I just wonder if you can help us understand why there is such volatility in the aviation marine side of that business. Okay.

I will address the commercial. Thank you for your questions. We mentioned earlier on that 25% of our commercial business is, I would say, volatile. So 75% is recurrent as such, you know, with big industry, mines, cement, et cetera, et cetera. So that's recurrent. And 25%, we defined it as volatile. Why? Because aviation business, marine business, and annual tender business. So that part of the commercial business is therefore volatile. So sometimes you're at 100% of the 25, sometimes you're at 110%, or sometimes you're at 85%. So that is the volatility. So that's why we are prudent and we use prudence in our figures, be it through the margin or through the volume. That's the commercial aspect. Did I answer your question? the the other the other point can we introduce cr qsr into the engine yes of course we can they already have good cr offerings across their sites through their own brand it is i think it's not bad it probably needs to be dusted and remarketed in an intelligent way. We're not going to go there and say everything is bad. Believe me, there are some good things and we're going to try and build on the good things. Because don't forget, we're taking the brand and with the brand comes some contents. So we will build on it and make sure that it is well merchandised, that there is the good partners behind it. The food side to it is not that good. So the CR, convenience retailing, we will make sure it runs better. The QSR, well, we will have to work to it and bring probably on board our partners, which we already have, the Kentucky Fried Chickens and the others that are now our partners, through joint ventures or otherwise. And there is an opportunity to do that. And finally, Johan, you want to answer the first question? I was bringing it to you.

It's day six. So we're really trying to get our hands around and what we'll do in the next two months is really to understand, you know, what is the plan for this year? Because we have a high desktop plan at this point in time and we had unfortunately limited interaction, some interaction, but very limited. So we, you know, I think to be on the conservative side, we assume, you know, that there's probably not a lot of upside, especially on retail. You know, you need a pipeline of sites. They have not really built many sites in the last five years, so we'll have to build that pipeline. And then commercial, as Christian said, we will push it hard. And their results have been flat for the last three years, basically. There's been a bit of movement across the countries, but there's no investment model around the engine business historically that's why we're so excited because we actually can take it now and invest in it and and and then really drive it for performance because even the governance was more is more like shell used to run the business from cape town you know so we want to really empower the teams and give them the oxygen to really drive the business with clear accountability christian mentioned the scorecard so we'll say listen so having said that it will take you know, probably most of this year to get that all in order and to get a feel for what the business will be. And then I think from, you know, next year onwards to really, you know, see the impact of the growth of the engine countries.

Yeah. You see, what we did in the Vivo time in 2012, which was the first year where we arrived and it was a desert when it came to the pipelines. So we had to create that pipeline. In the interim, there are other solutions. We can go through the dodos, and that can enable us to go a bit faster where you can. But it's not always possible. But we will try all the avenues, believe me, in order to start fast-tracking that so that the brand starts. You see, what is important is to show to the market and to the different markets that the brand is moving. So if people start seeing 10 sites rebranded, they don't know if it's company owned or dealer owned or whatever. They will see a new brand. And we have to do that in order to show that we're now here and reinvesting and opening and we're open for business. So that's what we're going to do and fast track it. Commercial, we're going to go after all the tenders. Believe me, mining is big in Zambia, for example. And also there's one country which I can't mention where they have a pipeline. You know, it's fantastic. So we're going to start with our country. Believe me, we're going to fast track. I don't know how many sites, but quite a few. And the managing director, I don't know what happened, but he decided to have a pipeline. So, you know, he's a hero for us and we're going to use them.

Maybe just one other point when, you know, we call it operation excellence is how we manage our sites, which is one of our key strengths. And when we go back to when we bought the business from Shell, we actually did spend quite a bit of money in making the sites look up to date. So we'll do the same with Engine in the next 18 months to really make sure these are places you actually want to go to, that they are at the top end of the market, and also then impose our operational excellence so we can drive like for like, which historically wasn't the case. So we will give the rewards to the pump attendants to make sure the dealers have the cash, the cash flow, working capital. So that

that's all in the works but again it will take time to put that in place thank you another question questions uh yeah hi james hubbard from numis um just thinking about the margin guidance for this year versus what was delivered second half of last year i'm wondering how the moving parts in there was morocco still falling throughout the second half of last year so ended december maybe lower than it was in July. And so does the guidance for this year, the high 60s, does that factor in an assumption about Morocco being flat from now onwards or from December onwards? And also similarly related to that on the moving parts side, East Africa. Basically, what are the major moving parts in that guidance for this year? That's one question. And then the second one, which is a bit more vague, if you like, philosophical. Your comment about the subsidy I thought was interesting. I used to cover Indian oil marketing companies many years ago, and there was always a big bun fight at the end of the year where the oil marketing companies in that country would have a fight with the government about how much of the subsidy they had to outlay through the year they were going to get back. So I'm wondering, when you talked about Senegal, is it a similar situation? There's a temporary kind of revenue mismatch, and then you have a big discussion in quotes with the government and try and claw back as much as you can. So I'm wondering what color you can give on that.

I'll talk about subsidies, and then you can rebound on the other one. So the subsidy issue in Senegal is very straightforward. They obviously did not follow the rise. So at some stages, they mismatched. And they owe you money. And basically, every month you reconcile these figures and you know exactly how much they owe you. So there is no ambiguity and there is no discussion on the absolute amount. It's now to see how they're going to pay it. So it will take three months like it could take six months but they will pay. They've already paid. That's not an issue. In Botswana it's the same thing. They sat on the price and they refused to move it for electoral reasons. Okay, they will pay for it. And we've never had defaults from government. Governments don't default. They take a while to pay but they pay. So a question, they even in some circumstances they even pay interest. I'm not saying that they will in this case. So that's the subsidy.

Johan?

Moroccan margins, you know, I think did come down and you can see that in the slide that I showed. I don't know if you want to bring back that slide. You can do that. Yes. So we were at 71 in Q4 coming down from 79. Yeah. So really, I think. That's really the Q4 is what we believe, I wouldn't call it normalized, but kind of what we believe going forward is the margin for retail as a whole, more or less. Again, there's a bit of moving parts there, but that's the zone. And if you go back to what we said at IPO, we said, you know, We were at 78. We said guidance going forward for retail was 75. Clearly that's no longer the case now because that was based on 17 Morocco numbers which resulted in an overall cash gross unit margin for Vivo Energies in the low 70s. Now that low 70s has become high 60s mostly because of Morocco. The only other element that I refer to for this year is commercial, where, again, we were able to capture a bit of extra margin this year. Last year. Last year. We said clearly low 40s at IPO, but we probably will. I mean, clearly that's now a bit higher. Clearly not 46, 47, but, you know, somewhere in between. So that's the other element that drives slightly lower margin compared to last year.

Also, what is positive is that I think at IPO and Subsequently, we always said that we lobby government to make sure that the local margins, which are in local currency, are adjusted to follow inflation and all that. Well, five countries adjusted their margins. So they adjusted halfway through the year, end of the year, whatever. So the full impact comes in 19. And this year we'll get another five or six or seven to adjust margins. That's what we do all the time. It's one of the priorities of the local MD. Okay. to make sure that the erosion, if there is one, is recovered through a local margin increase.

And then East Africa, I mean, there's one country deregulated, it's Uganda. So again, you have a bit more volatility in that margin, but the rest is regulated. And I think the supply issues that we saw in last year are now behind us because the pipeline is up and running. So supply is flowing very well in Kenya and East Africa. So...

Yeah, in the East there was an impact at the end of the year for a multitude of reasons. Prices going down, also an overstocking of diesel. What happened is that at the end of the year, the pipeline started working. The railway was opened all the way from Mombasa, all the way to Nairobi and all the way to there. And suddenly, well, there is less transport. But you know imports of products are not done every day. The cargoes come by a period and what you receive today was plants three months or four months ago. So with a bit of hindsight they should have ordered less. Yes, but life is not perfect and they ended up sitting on big stocks, not only us, the market. be it Uganda or Kenya, well, of course, the independence and the big independence in these two countries, well, they started dumping because they didn't know what to do with the product. So they pulled the prices down, but that is behind us. So all these headwinds, as we call them, be it in supply or indirect impact on the margins, are behind us. And as we go along, this is absorbed. Yes? Sorry, I think you were... Please. Yeah.

Thank you. Simon Owen from Credit Suisse. Can you just give us a little bit more colour on Morocco? Obviously, we're watching YouTube as much as you are, I'm sure, for the latest news. But what's the worst case scenario if they do decide to regulate margins and how much downside do you think that would give you to overall retail margins if that were to happen? Secondly, just on lubricant margins, it looks as though you've had more success passing through margins on the commercial side than on the retail side. Can you just talk about the kind of typical timeframe that that would take to get that through the retail side, which is obviously a larger part of the business? And just in terms of future M&A, is there any likelihood that the DRC will happen? Are there any other markets where you're looking at M&A at the moment?

Okay, the latest news from Morocco is quite straightforward. The minister on Sunday, live on a TV program, was quite clear there is a law, there is a ruling by a competition board, and he said, I will abide by that. Full stop. OK, so there is no longer an agenda of doing what he thought he could do or not do. That's number one. The worst scenario, I don't know if there is a worst scenario, but we have issued guidelines for 2019 high 60s when it comes to our group margins. And that is what we think what we think, knowing what we know today about Morocco and others, the weighted average is what we have given as guidance and that is what we can communicate today because I don't know what could happen otherwise. That's number one. Number two, what was the other point, Johan?

Lubricants, B2C, the margin.

Oh, the margin on lubricants.

It was my point that I referred to. We have retail, which includes both our retail sites and the B2C segment, business consumer, which is really the resellers, the distributors, which is the bulk of the retail segment. It's quite sticky in terms of pricing. So that's why the lag takes a bit longer to adjust the prices. But I think having said that, I think we are seeing a recovery in the lubricants margins as we speak. So that is now, I think, is behind us.

The mechanics, you know, I have gone around and believe me, I visited quite a few, be it in Senegal or Morocco or otherwise in Tunisia. These small shops, and it represents a big chunk of our business, they don't change their price. They don't. They have a price. The barrel goes to 100 or 200. The price is the same because the buyer buys a liter. He doesn't understand the change. So they keep it. They keep it. So when we go like that, you don't change your price. It stays. So the weighted average remains nearly the same. All right. And you just live with it. in that segment. So you work on the other segments, which is therefore retail sites, you work on B2B, you work on what you can. And obviously, when you have massive variations, there is a lag. So it took us longer than we thought. So what we can say today is that January and February, we have a situation where the margins have recovered. I can't say you more. Finally, DRC. Lovely topic. Well, I don't think they've appointed a prime minister yet. So we have a head of state. The prime minister is not in place. When the government is in place, I would think that our partners, Engin, will start talking. And when they'll start talking, we will see. We're nowhere there yet. I don't think anybody has talked and I can't talk on their behalf. So the day it comes, we'll look at it, like I said, like any opportunity. It's disconnected from what was the consideration in the past. It will be a new discussion. I think you wanted a question.

Hi, good morning. Nick Coulter from Citi. Two, if I may. Firstly, on Morocco, what's happened to your market shares in that country, obviously with consumer boycotts, et cetera, during the year and a lot of kind of competitor issues? activity, has there been any lasting impact or advantage for you? And then secondly, philosophically, when do you think you will be in a position to pursue more M&A? When do you think you would have realistically digested the Engin deal? Thank you.

Okay. We have grown our market share in Morocco. I can't go into too much detail. You remember last year at some stage there was a boycott against some companies. It did not concern us. yes our market share grew and our market share continued to grow although that company that was boycotted regained its market share but we we continued to grow our market share and we ended up the year and even the beginning of the year with a very very strong market share all right so it comes from a lot of reasons uh v power opening new sites being more dynamic loyalty marketing campaigns when you add all these recipes to the offering, yes, you grab market share. And we did, and we still got it. That's number one. What was the other one I forgot? M&A. M&A. Well, M&A, as I say and I repeat it, when it comes, we'll look at it, analyze it, digest it or whatever, and if it's attractive, we'll go for it. Today, there's nothing on the radar screen.

Yeah, as is. Engine took more than two years. You imagine? From start to finish. So, you know, these deals take a long time. So it will take probably will be busy clearly this year with engine. But at the same time, we can, you know, if something comes.

Believe me, we'll be on it. We're ready to look into.

Any other questions?

Yes, sir. Sorry.

Five minutes. Any calls, please? One, please.

Yeah. We have a question from the telephone audience. It comes from Martin Boris of XMBMP Paribas. Martin, your line is now open. Please go ahead.

Yes, thank you. Good morning.

Good morning.

Just a quick question on EVO. Could you give us the average retail unit margin across EVO countries? Is it in line with VIVO countries? Thank you.

Yes. don't intend to share the margin separately for engines. So comes the next results and quarterly updates, you will see an integrated margin. And we still, because they report their numbers slightly different, so it's as I said, we need to make sure if we give anything, we give you the right answer.

The weighted average, which we gave as a guideline, guidance for 2019 includes the engine country, the eight engine countries. So the high 60s includes it. We will see as we go down the road in the year if there is a merit of changing it or not. But I mean, for the time being, it is what it is because it takes into account all we know, be it through the markets, be it through Morocco, be it through Evo or engine today. And we don't intend to change it at all.

but overall would you say it would have a positive or negative impact on overall margin?

I think probably you could assume No material impact. That's our assumption at this point in time, yes. Both because of the size and probably the difference is not there. But as I said, they don't even have the concept of a cash unit margin that we use, they don't use. So even today, we need to get into the weeds to really understand.

We have to roll out the way we manage the business in order to have them to be reporting in the same way, that we can decipher their figures in the same way as we decipher our own. in order to start doing benchmarking and trying to see where the efficiencies lie. And therefore, there might be efficiency through productivity and otherwise, but it's early days. Monday was the real first day where we put our hands on this business. It will take us a month in order to understand it a bit better. We've spent a lot of time working from a distance. Now we're in situ is the word. So we will understand faster. Any other questions? No? From the floor before we close? You're all happy? Oh, one final? Yeah, because we have a conference. Please, one final. Go ahead.

Yeah, I'm just wondering the target tax rate I think is 35% you said at IPO or mid-30s? So we're pretty much there. Is that done or will NGN maybe fractionally change that?

We'll have to look at that.

It's, you know, We ended at 36, if I'm not mistaken, no? Is that what we did?

Well, 36 today, so we still have a bit of little room, but engine again, there might be, you know, a likelihood that it pops up a little bit, but then again, I think long term, yes, 35, but with engine, it might bring a bit, you know, we just started our purchase price allocation. We look at their, you know, their tax provisions, their tax rates, the way they look at the whole philosophy around it.

We'll work at it in the same way as we worked on Vivo at the beginning. Believe me, it was significantly higher when we started and I mean significantly and we brought it down.

The structure is the same in terms of we have the corporate income tax and then you have your withholding tax on dividends and corporate tax. The rest is just being efficient.

Okay, thank you. Thank you. Okay, ladies and gentlemen, thank you very much.

Thank you. Thank you.