Vivo Energy plc

Thanks to those who've joined us in the room and those who are dialing in and listening via the webcast. This is Vivo Energy's 2019 interim results presentation. We will run through a presentation that's on the website if you are just dialing in as a conference call. Christian will open that up, our CEO, and then Johan, our CFO, will talk through the detail before Christian comes back at the end to provide some more colour on how we're moving the operations forward. We'll then open up to Q&A in the room and then to those on the line. So please bear with us as we get through your questions. And with that, Christian, I shall hand over to you.

Good morning. Do you hear me? Good morning. We heard you all. Okay, thank you very much for coming. I know some of you are online. Welcome as well. The format is now fairly drilled. I will start by opening the show, walk you through a few highlights, put a bit of... color, was it you who was saying color? Color, and then I will pass over to Johan who will then talk serious things like figures, because you're only here for figures, aren't you? The rest, the color is my domain. Anyway, back to serious matters. If we can go through the next slide, please. Thank you. Are we on the right one? I think we are. In summary, this is the agenda. I will do introduction, Johan, financial performance review. I'll then conclude by updating. And then we will be open for questions and answers. So next, please. All right. I think you've known us now for quite a while, more than a year and a half. And you know that we're always on the move and we keep this business moving. And in the last six months, that's what we've been doing. We have closed the engine transaction. It's exciting. We have eight new countries. And on top of that, for our pleasure, we installed a new ERP in 11 countries, and two more are coming next week, the big ones like Morocco and Tunisia, and by then we would have done our 15 original shell countries, and that will be behind us. Then we'll have to prepare ourselves to do the same thing in a year's time with the engine countries. So that's exciting because that tool is a modern tool. It allows us to manage better, to see better, to have better data, to analyze the data better, to use modern systems you can plug in like site automation, like loyalty, and on top of that to understand what is coming out. So it's not just garbage in, but it's quality information coming out. The old system was dying and we had to do it. In the same period while we were doing that, Our business grew. The volume grew by 8%. But what is important, and if you remember last year, we had rock and roll when it came to margins. The margins have finally stabilized. And now we have stability in that, and we can even see a growth of those margins. That allowed us to deliver 200... Sorry, I have... It's not you giving me that. It's allergies. We delivered $212 million of adjusted EBITDA, which is 4% higher than last year. So if you... take into account what happened in Morocco. So not only did we absorb that, but we still grew the EBITDA. And that allows us to also declare an interim dividend of 1.1 cents per share, which is nice to have as I'm also a shareholder, so I like that as well. The increase in the adjusted EBITDA, as I said, was in spite of the 30 million hit in Morocco compared to last year. So it's not a small hit, but that is behind us. So far, we absorbed 60 million hit because of the Morocco adjustments, is the word, and we have managed to grow the business and grow the results. So nice to have and pleasing to be able to talk about it. If we move on to the next slide, If I could put the result in context, our business, of course, is not immune to outside elements. And there are quite a few that happen. And it is the way we all operate, be it Africa or elsewhere. There are external effects. The important is that our business can overcome that. Our model enables us. We are diversified. And we absorb and we take headwinds when they come. And we move on. and adjust. This diversification, as we talk about it, allows us to do that. It is that ability to offset some weaker markets and fast track the ones that are in motion. And the new engine countries have potential. and we are going to drive them to their maximum. That would help us, of course. Morocco retail, also, in view of what has happened in the past year, it only represents now 10% of the group EBITDA. If you seem to remember, it was as high as 29% a couple of years ago, a year and a half ago. So it's nice to have, and it just shows that we have absorbed it, and it's now, well, not as such a heavy weight in the overall equation. One area we can't mitigate on is, of course, the barrel. It's a bit of a yo-yo when you see it was as high as $75. It went down to, was it $54 at the beginning of the year? And now it's back to about $60. So these are big swings, right? And we feel them, whether we like it or not, in activities like resellers. These people who buy from you or import products in certain countries like Kenya, well, suddenly when they see the barrel collapsing, well, they stop buying. because they're sitting on big stocks. Your own dealers, of course, when they see the barrel coming down, I'm talking about retail dealers, okay, they slow down. They say, well, tomorrow is going to be cheaper. So there is a slowdown. It only lasts maybe 15 days, but then you move on. And over a period of 12 months, it disappears. But these impacts are there. On a period of six months, when you see this happening twice, i.e. end of December and in June, believe me, well, you feel it. But over 12 months, it's going to be diluted. We had a slide last year, which is over 15 years. It's a blip in the whole equation. So what is important? Even with the Morocco effect, the retail EBITDA remained flat, which is good. And that is our strength. Finally, a couple of weeks ago, on Morocco, we issued a release statement because of an action by the Competition Council. Well, we have replied to the grievances of this council on a certain number of points. We are cooperating. For the time being, we have replied, 100 pages plus another 300 pages of annexes, and we leave them digest. When they come back, we will discuss. Next, please. As I say, we don't stand still. And we continue our record of opening virtually one site every three days. And we've opened 41 in the first half of the year. So that's good to have. We also, in parallel, opened 50 food offerings on different outlets, on different sites. So that's also important. We signed an important joint venture with KFC, mainly for the time being for East Africa. That's in three countries with the potential to grow into another four or five countries. So that's an exciting opportunity because you're now partners with a big group, and you can drive it faster than we were able to do. Excuse me. At the same time, We kept focus on what is important, i.e. environment, safety, security of our operations, and we have a very good track record. If you look at the figures, we are top of the class. And we will continue. It is fundamental because that is number one and allows you to continue building what we want, which is a gold reputation. And that is the objective of the company. I talked about the ERP, but I'm sure Johan will go into that detail. But I would like to say something important about the ERP. Even people like IBM and SAP were completely taken aback by the speed at which we rolled it out and by how much we squeezed them when it came to the cost. We did it ourselves. We had very strong teams from the business, right? So it was people who knew what they were talking about. We did not delegate it. We controlled it. And we made sure it was rolled out professionally and to our demand. And we did not do it to bespoke because you know that, well, the more you bespoke it, the more it will cost you when they upgrade it. So we made sure it remained as close to the standard package as possible. And that is why we were, well, I guess, effective. And they now use us to publicize the tool. I think I've finished, Johan. It's all yours. Thank you.

Thank you, Christian, and good morning. As Christian said, it was a resilient start to the year, and we're on track to deliver the objectives for 2019. The new engine markets drove the big increase in volume during the first half with organic volumes behind where we would like to have it and I will talk to some of those reasons. While margins are lower than the previous period as expected due to the impact of Morocco, they are ahead of where we guided for the year due to the hard work of the teams of our business and also the discipline that we imposed in the countries as Christian referred to the reseller business. So together, these led to the adjusted EBITDA for the year up 4% to $212 million. Going to the next page, which is a familiar slide. As you know, we operate across three segments, with retail and commercial being the big drivers of volume and EBITDA of the group. You can see that even after engine and all these results include the four months of engine as we explained or we guided for in March. Retail reminds the driver of the business accounting for just under 60% of adjusted EBITDA. We will go into each of the different segments, but as you can see at the bottom that each of the segments did show year-on-year EBITDA growth. So let's start with retail on the next page. And this is a heat map showing the Shell-branded countries in terms of year-on-year retail volume growth. As we said, we have 8% year-on-year growth overall as a group, with 2% organic from the Shell-branded countries. So you can see the dark greens are over 5%, with the pinkish-reddish actually showing a negative growth. So some countries performed really strong, like Senegal and Mali, showing growth rates over 5%. However, we also had countries, four countries specifically, where we showed negative growth. And each of them have a specific reason, which I will now explain. We start with Tunisia in the north. As many of you know, Tunisia is going through a tough political and economic times. And overall, market is down. And so unfortunately, our market is down as well. However, we've been able to increase our market share. And just to add that in addition to the economic challenges, there was also nine days of strikes that impacted our volume in the first half. Moving on to the east, where we have Uganda showing negative growth. As you know, it's one of our three deregulated markets. There, we actually decided to go for margin rather than volume, which resulted in very strong financial results for the country. However, despite, you know, we suffered a bit on the volume, but made up on very strong margins as we're able to, you know, premium price our fuel compared to the independents. Then moving on to Guinea, back to the west, it's actually underlying store is very strong. We show a 15% year on year growth for the retail business. However, we also did a reclassification of some white pumps that used to sit in retail that we moved to commercial. So it's kind of a one off effect that from next year we should not see anymore. And then finally Ivory Coast, as well as the last country with negative growth. There continues to be some industry-wide issues. You remember we talked about the refinery issues. Unfortunately, it took longer to restart the refinery. So that had an impact on supply. We also had our biggest site being rebuilt in the first half of the year, which again impacted the volume significantly. But from the second half, we expect in Ivory Coast these challenges to be removed. Moving on to the next slide, we talked about overall volume growth, but just wanted to highlight a few key points. You can see that premium fuel representing 3% actually grew 41% year on year. We talked about that last year. It's one of our key focus as we make higher margins on that. So it moved from 1 to 3%, especially in the deregulated countries, as well as Tunisia, which allowed us to price a premium at the pump. You can also see that despite the Moroccan margin drop, actually we dropped 13% or $10 in the Shell branded countries. The overall gross cash profit remained flat year on year. So it was overall the volume from engine as well as you can see the 3% accretive margin coming from the engine countries. Going forward, we see that the retail margins remain in line with the first half. And we have now gone through the full 12 months of Morocco adjustments. So we should see the overall gross cash profit increase in the second half of the year. Moving on to commercial, headline volumes are clearly up to the engine transaction, with the underlying Shell branded countries showing flat growth. We actually took the decision in the first half to protect our margins and step back from the reseller business, especially in East Africa, and focus on profitable business. And in aviation and marine, which are also the volatile business, the volume was flat. Actually, the volume was up in aviation but was down in marine, so year on year flat. but with stronger margins and you can see that the margins in commercial remained at $47 per metric cube. So that drove the segmental EBITDA up 10% year on year. Moving on to lubricants, as just a reminder, this is the pure distribution result from lubricants. It excludes the pickup from the joint venture, the equity pickup from Shell Vivo lubricants, of which we hold 50%. You can see overall volumes were flat, with engine volumes actually offsetting a decrease in the Shell markets. The margins for Shell branded products were back to the $550 per cube, which we mentioned last year as we were recovering the increase or the drop in base oil. So we're now back at where we used to be. However, unlike retail engine, lubricants have a slight negative impact on our margins as they're sold at the lower margin. So the margin is basically flat. Moving on to kind of a waterfall showing our change in EBITDA. As we said, we saw a $30 million like for like reduction from last year due to the lower margin in Morocco. However, what did we do to compensate for that? We clearly drive the other markets very hard, delivering $24 million in adjusted EBITDA. That also included some cost savings, so we were able to reduce our SG&A. as well as had some synergies of $5 million coming from the engine transaction. And then, of course, we have the $14 million of adjusted EBITDA coming from the engine countries, which shows the increase by $8 million in EBITDA. If we look at net income, Again, a waterfall. We clearly have the uptake of the underlying profit. However, due to finance expenses as well as some higher tax expenses, we see a decrease in net income. The finance expenses, 10 million of the 14 million is due to The swaps we have in place whereby we moved our floating interest rates to fixed interest rates. Last year, because interest rates were high, we had a gain of 5 million in the finance expenses. As you all know, interest rates have dropped, so we actually took a loss of 5 million. So there's a $10 million difference in that. And also there's a slight increase due to the payment on the RCF for the engine transaction. And then the tax rate is our effective tax rate went up to 39%. Two main reasons. One, the engine countries have a higher tax rate as well. Morocco was hit by an additional 2.5% corporate income tax rate imposed last year. So that is now hitting our tax rate. And we assume that the tax rate will remain 39% for the year. Moving on to the cash flow, which due to timing issues of some large customer payments is actually not reflective of the underlying picture. You can see that especially the third line working capital did increase. But this is, as I said, a temporary increase. There was one delayed payment of one of our largest customers that because we actually re-signed the contract, there was some invoicing issues. And unfortunately, the payment came in July. which was $43 million, so a big amount that now has come into the bank at the beginning of this week. And then the second element is the supply in Kenya. whereby it's a tender system whereby you purchase products for the whole industry. Because of the timing of us winning or not winning tenders, again, we were hit in the second quarter. However, we have been winning tenders. And again, if you look at the end of August, that would be a swing of $50 million reduction in working capital. In summary, we're still structurally negative working capital. Nothing has changed. It's just the timing of these payments that lead to these movements. Then CapEx started the year a bit slower than 2018, which is just under $50 million. continue to, as Christian said, to finalize the ERP, which is the bulk of the special projects. So given the slow start, we expect to come in a bit below our original $150 million of guidance. But this will not impact at all the rollout of 80 to 100 sites. And as Christian mentioned, we have already opened 41 sites in the first half. Then moving on to leverage, as always, we're well financed and have a strong balance sheet. However, due to the timing issues of the working capital and a slight increase in the long term debt due to the engine transactions, we increased the leverage to just over one times. But again, given the working capital timing issues, we expect to improve this number in the second half. And then finally, a few words on the outlook. We had a solid start to the year and are on track to meet our objectives. In terms of volumes, we would expect to be at the lower end of the range given the first half performance. So how we will do that, clearly we'll have the full six months of engine coming in compared to the four months in the first half, as well as retail volumes will pick up in the second half. On the margin, we delivered $70 per metric cube, and now we expect to be at the upper end or slightly ahead of the previous guidance of the high 60s per metric cube. And then finally, we talked about CapEx, where we're likely to fall marginally short of the $150 million, but we'll deliver the 80 to 100 sites per year. So that's it on the financials. I now hand it back to Christian for the conclusion.