Vivo Energy plc

Thanks, Christian. Good morning, everybody. Thank you to those who've braved the queues to get in the building. And apologies to those who are on the line. We've had some issues getting people into the building, so we've had to delay for a few minutes. So thank you very much for your patience. So we're very pleased to announce our full year results for 2019. Presenting them will be Christian Chemas, our CEO, and Johan de Prater, our CFO. Johan's struggling with a pretty bad back at the moment, so he's actually going to sit down to present. There's nothing else untoward going on there, but please bear with us for a slightly different presenting style to normal. But what we'll do is run through the slides, and then we will take questions from the room and move into, after that, move into questions from the call. So with that, Christian, I shall hand over to you.

Thank you. I just hope it's the coronavirus that is making it such an empty room, but anyway, it's good to have that excuse. So anyway, welcome everybody. Thank you, Giles. Where is the blip? You walked away with it. Who's going to do it? You got it? So you're going to do it? Okay, fine. So one less thing to do so I can concentrate on my talking. So you're very, very welcome. I see there is actual physical shareholders here as well. I counted three at least. Is it three, one, two? Let me see. Maybe I'm wrong, but I see at least three, which is very good. All the rest are strong partners who support us in our endeavors to make sure that this company is nice and square. And what you see is what you read and what is there. And that is how we built it, and we intend to keep it that way. You jumped a queue here. There was a big declaration thing, which I presume you've all read it, and you're happy with me to go through it or to pass it. Pass it? Yes? Thank you. Next. So the format is same as last year's. I'll do a short introduction if I can. Then I'll pass on to Johan who is sitting down because he's hurt his back. It's nothing to do with me. all the results but he will do it sitting down and I thank him very much for coming because believe me yesterday he was seriously bent and we had magicians working on his back yesterday afternoon so let me now proceed then Johan will do the presentation when it comes to the financial review I will come back and or talk about 2020 and the future. And then I'll open it to floor questions and answer, online questions and answers for everybody to shoot away. Thank you. Slide, please. Thank you. So I'll take this off. I don't need it. well from from the results you can see that we've demonstrated strength uh resilience to the business of the business and we have delivered another strong year it is our second year we're very proud to to be on that trend and you'll see further along in my presentation that that the trend is only two not only two years old and we've been doing that for quite a few years uh we we continue to move forward and build the the platform that is necessary for future growth that is now what I would say, an asset. It is there for tomorrow. And we have proved also that we can deliver very strong, big projects successfully. I'll talk about this. And at the same time, we did not lose focus on the important HSE3 issue. It is fundamental in our business. You know, it is not a simple or a super... Anodin? Anodin in English again, I forget. Anyways... I'm talking in French now. Yeah, a common product. These are dangerous products and therefore it is fundamental the HSSC is at the top of our mind, in our hearts, in our DNA. And it is the case and we work very hard at it. Finally, Johan will talk at length about that. We deliver strong cash flow and have increased what I would call our recommendation for dividends for our shareholders to show that we are confident in the future. Next. Last year, or the beginning of last year, we set out commitments, and we said we're going to do this, we're going to do this, and we're going to do that. Yes, I'm proud to say that we have delivered what we promised, right? So, commitments equal to delivery, and that is what we have done. And again, we delivered against all of them, not only one, or selectively. of commitments were delivered, and we will continue to demonstrate that, that the track record as a public company is a continuation of our track record as a private company. We were doing that year on year, and we will now continue doing that year on year as a public company. And that is what we promise and what we have to deliver. Thank you. And when you look at all this, and you can see, are we in the right slide? Yes? Thank you. Which leads, what can I say? All the segments have shown growth. From the top to the bottom, they're all growing. It is good to have, be it in the engine or the shell markets. The business now has more than absorbed the impact of the margins in Morocco in 2018. That has been absorbed and we moved on. The Morocco business is, and I'll talk about it later on, is not the heavyweight it used to be. And that is good for us. Finally, we have shown that the growth is continuing. And when you look at the difference between 2015 and 2019, we've increased the adjusted EBITDA by 80%. I mean, this is a strong, strong performance. And we're continuing to do it, even though we had hits along the road. And we will. It's normal. The world is not linear. It goes up and down. Finally, I think that 2019 was a transition year where through engine, ERPs and a whole series of impacts and effects that came along the way. Well, that has enabled us to have now a strong platform to build for 2020. Next. It is important to highlight the diversification of our business. You know we report on three segments, but we operate over a whole series of different businesses across the continent. Each one has different dynamics and drivers, but we believe that together They offer that strength, that resilience to external effects and even internal effects. I mean, that is the way the business is managed. And when you see on that pie, 75% of the business is, I guess, around stable margins. So you have not uncertainty, but you have 25% that is subject to variability or volatility. And, well, we can live with that. We know how to manage it, and we manage it. Regulated fuels, you can see deregulated fuel at 20%, and then through aviation and marine, that's the 25% I was referring to. All the rest is fairly stable, right? So that is pretty good to have, and we manage it in an efficient way. Next. You can see from these two pies as well that we have a lot of different businesses, but the largest one is now down to 13%, and that is Morocco. It was a high of 29%. I'm talking Morocco retail here. It was at a high of 29% in 2017, if I'm not mistaken. So it went down to 18 and it's down to 13. So divided by two. How did this happen? Not by magic. It happened by the growth of other businesses within the existing perimeter, i.e. the 15 shell countries. It happened by the... merger or the acquisition of the engine countries, so that further diluted that weight, and basically the whole cocktail, which you saw earlier on, has enabled us to reduce that, what I would call that big white elephant in the house of Vivo Energy, and therefore we can live with it now at 13%. There are other businesses that represent 5% or under, well, fine, but it's not as critical as it used to be, and we can live with that. Finally, what you have to realise is that the forex element to our business. When you see that 65%, if I'm not mistaken, is directly hedged to the euro or the dollar, well, that's a good hedge to have, and we can manage it. The remaining, well, the rest is in the market. The margins are adjusted annually or biannually or every two years, and that allows you to have what I would call a US dollar margin that remains fairly stable over a period of time, and we've shown it before a couple of times. Yes? Well, to sum up, and before I hand up to Johan, who will carry on on the finance presentation, it's a good performance for 2019. A lot of challenges in 2019, but we still delivered what we promised, and we're very proud of it. And we are building, therefore, a platform for future growth in 2020 and the years ahead through the engine business through the existing what was the existing shell business because we know there is opportunity there is obviously a lot more opportunities in the engine countries because we've done our homework very well in the shell countries but we will work furthermore to bring that value to vivo energy and continue to do it day after day johan please thank you thank you christian and good morning everyone

As you can see, the numbers speak for themselves this morning, a very strong set of results. The free cash flow number is probably the standout number, especially if you remember back in August, we actually had a negative number in the first half. And I'll talk about it more in detail, given that there's some timing impacts around working capital. But even the underlying number, if you exclude these timing numbers, is very strong. And Christian mentioned the dividend. We have declared a total dividend of 3.8 cents per share, which is up 15% on a full pro forma year on year, accounting for 12 months of 18, with the final dividend doubling compared to last year, which again shows the confidence that we have in the business going forward. This is a slide we showed again in August as well as it really highlights the momentum we've gathered in 2019. You can see basically two drivers. One is the shell margin. which has now recovered and stabilized. Just to remind people, especially on the retail margin and the effect of Morocco, if we go back to the first half of 2018, the retail margin was still at $78 per metric cube. Then we saw the decrease to 73 and then hit the lowest in 71 in the first half of 19. And in the second half, we're now at $72. So you can see that now really has has normalized, and then the second impact that you see is really the addition of the engine acquisition from March last year. Moving on to the heat map, again, something we start sharing in August. And you can see it's a different picture from the first half. Second half, we see a recovery. You see that Ivory Coast and Tunisia have rebounded from their first-half performance, with also Uganda having a very strong second half as they kind of you know moved away from from uh maximizing unit margin to actually uh regaining some of the market share that that we sacrificed in the first half we also had very strong performances in kenya burkina faso and mauritius um you might remember guinea was pink in the first half continues to be pink in the second half but that's mainly because of the classification of white pumps that used to be in retail and now have moved to commercial so the performance actually in Guinea of the Shell branded sites have been very strong. Some of the weaker markets, we continue to focus on price leadership in Ghana, maximizing our total gross cash profit, so like we did in Uganda. And we also see the big country there is Mali, where again for the year they're positive, but in the second half, due to the security issues that they have as a country, we saw an impact on the retail fuel volume. Moving to the engine markets, which were not there in the first half, we've included them. And you can see actually, and this is based on MI numbers, because we didn't own the business in 18. But year on year, you can see that all eight markets showed a very healthy growth of over 5% across the board. So we feel that the momentum is back. I think Shell retail volumes grew about 2% on the year, but they kind of showed momentum towards the second half growing at 3% year on year. Now, talking about retail, you can see gross cash profit is up 6 percent, which really has two effects. It's the margin, as I mentioned, is down 5 percent year on year, but volume is up 10 percent. Both non-fuel retail and premium fuels have made strong contributions to this year, and you can see that on the right-hand side. Non-fuel retail gross cash profit is now $33 million, clearly held by Enjin, but even without Enjin, The Shell-branded non-fuel retail business is up 16 percent year on year, so delivering slightly ahead of guidance. We see a lot of potential of QSR in the engine markets and are actually planning to open a KFC in Gabon and one in Rwanda later this year. On the premium fuels, which is at the bottom right-hand corner, we actually sell now the V-Power in five markets, including Tunisia, which was launched in the second half of 2018. And you can see it accounts now 2% of volume and 3% of group profits. But what you see there is actually the year-on-year growth in the volume from V-Power, which is going from 24% to 30% in 2019. So again, we start from a low base, but tremendous momentum in our premium fuels business. Moving on to commercial, again, second year in a row, very strong year with gross cash profit growth overall 18%. And you can see both aviation and marine growing 23% and core commercial growing 17%, so good performance in both businesses. We highlight that we're focusing now on gross cash profits because actually volume in the Shell-branded markets is slightly down year on year, partly driven because, as we mentioned in August, we had the wholesale business, which is kind of a trading business. We pulled out of it because it became not profitable for us, which had a mixed effect, as well as some markets, some mines that went into maintenance, but in summary, The unit margin was up 4%, compensating for the small decrease in volume. And you can also see the impact of engine, where, again, engine delivered, and also we had a supply contract in the second half, which helped grow the volume, especially in the second half, and we will see that impact going to the first half of 2020. The final segment is lubricants. It's our smallest market, but as you remember, has the highest unit margin. We saw gross cash of profit grow at 6%. But again, we see, as you remember, in August, the first half was quite challenging around volumes, especially in the B2C channel in one of our markets. But we took action and recovered in the second half. And you can see that, you know, business is performing. And you might remember, we often discussed the shell lubricants margin around $550 per metric cube. And we can now, you know, confirm that for the full year, we actually have reached that $550 unit margin in shell lubricants. As you know, we focus a lot on costs, so we just want to share this cost. And this is the GNA cost for Vivo Energy as a group for the last three years. I want you to focus on the clean GNA because there's some special items and the depreciation which we want to exclude. So the cash, let's call them the clean cash GNA expenses have, you know, for the last three years only grown by $4 million despite additional cost of being public. Also, you know, growing our volumes by 15% and adding eight new markets. It really highlights, you know, the operating leverage we have in the business. and our focus on efficiencies. How do we do that? We continue to look at opportunities to make sure that our costs are as lean as possible. And also, given our model of having a virtual central organization, we benefit of some of the currency depreciations in the African continent. So that also helps to keep our costs down. But again, I think these are very impressive numbers. Moving on to net income, as you can see, adjusted net income is lower, but I'd like to highlight that this is mostly driven by non-cash items. You can see that we saw finance costs specifically increasing year on year, but there's a mark-to-market accounting expense on our swaps. As you remember, our term loans, we actually entered into a swap agreement where we moved from from floating to fixed interest rates, given that interest rates actually went down. We assumed they were going up or going down. We actually have to reflect that in our books. And you can see there it's an $8 million cost. And then in Zimbabwe, under IFRS, we were forced to adopt our hyperinflation accounting. And again, we saw a $5 million inflation adjustment in our finance expenses. We also see that the effective tax rate increased to 39 percent from 69 percent – from 36 percent, sorry, which really has several factors. We were – Moroccan Revenue Authority imposed a 2 percent – 2.5 percent additional income tax on the oil – on the market – the oil marketing companies. We also have the engine effect, which has slightly increased our tax rate. Moving on, as I said, to the cash flow, you can see, again, a lot of numbers. The bottom line number is the adjusted fee cash flow, you know, adjusting for special items, but really what we look at. You can see growth from $154 million in 2018 to $325 million. I think there's about $111 million of timing. impact related to working capital payments. Most of them are coming from Kenya, from East Africa, where, as I mentioned also in August, the industry is supplied by tenders. If you win tenders, it has a massive impact on your working capital because you supply the whole industry and you get attractive supply terms. If you don't win, you actually have to prepay for your fuel. Now, it happened that in Q4, we didn't win any in Q2, but in Q4, we won actually... one more than expected. And so that impact you can see on the cash flow. But even as you remove those, you still see a very healthy adjusted free cash flow over $200 million, which leads us to leverage. Because of the strong cash flow generation, our leverage net debt over EBITDA has now fallen to just 0.5 times We paid back $80 million of our amortizing loan, but we also drew about $62 million of the RCF to pay for the cash part of the engine acquisition. Leases and short-term borrowings have gone up slightly, which is due to the engine acquisitions. And we'll continue to pay the debt during this year. And we expect leverage to remain somewhere between the 2018 and 2019 levels. And again, as you might remember, in August, our leverage actually was 1.1. So we kind of have this range, depending on working capital movements, sit between 0.5 and let's call it 1 going forward. Capital returns and capital expenditures, very important as we continue to be investing for future growth. Oroache remained above 20%, which is really what we set as a target, and we stick to that target at 21%. We saw a 22% increase in growth CapEx during the year as we continue to expand both our fuel and non-fuel offerings. Special projects has slightly gone down because that's mostly related to our ERP implementation. But there's still other projects like site automation which are ongoing. And we actually expect to see maintenance CapEx is slightly down. Don't forget there's also a maintenance OPEX element related to our maintenance, but we expect our maintenance capex slightly up for this year as we make sure that our sites remain, you know, shining or, you know, up to the standards that we like to see them. So now moving on to the final slide, which is the technical guidance, and Christian will add some other guidance, but, you know, This is the guidance. So on CapEx, we see a small pickup, you know, to about $150, $160 million. You know, continue to foresee adding 80 to 100 sites for the year, including also some KDRs, which are knockdown and rebuilds. The tax will remain to be broadly in line with the 2019 number, because Morocco, higher tax remains in place for the time being. And then working capital, we continue to see our structural negative working capital to be in place. But as I said, there will be some timing elements that probably will bring down the cash flow year on year, given that the 325 is not the real underlying number. That is the end of my section, and I hand it back to Christian.

Thank you, Johan. So if you could concentrate now after the excitement of the financials, I will try and conclude. I intend to repeat this, and it's fundamental to repeat it and repeat it. I'm not saying ad nauseum, but I mean, our vision from day one, including when we were private, was to say we We have to gain respect and to become the most respected company in Africa. And we've been doing that day after day through HSSC, through our management of our teams, our stakeholders, the environment. And that is fundamental. You have to build a reputation. We were a new player between brackets, the same old brand, but a new player as the owner. And that remains through an intense focus on HSSC. You have to be the first in the class because that is, I guess, your reputation driver. You cannot talk about being reputable if you are not first of the class when it comes to HSEC. We are therefore very proud of our performance in 2019. We had zero incidents in the Shell countries. And on top of that, the frequency rate across the group is very low. 0.04 is something we're very proud of. On top of that, In the SASEE, Road Safety, Education and Environment, we spent a lot of money on 100 projects that were driven by partners with us behind the scenes in order to bring what I would call a plus to the communities around us and with a serious focus on, I would call, road safety and the environment. Finally, not finally, we had three spills, baby spills. To give you an indication, it is one out of one and a half million. So you can see that it is a very small quantity in the scale of things. And basically, we are on spill in the same way as HSCC. We are very, very... focused on it and we don't let anything get away with it. And our transporters are aware, our depots operations, our stations, everybody's aware that that is something that we are, you know, zero tolerance on that aspect, okay? Again, it goes to your reputation. We will remain focused on the environment, and we have been, and we have building blocks now, be it in the objective to reduce our impact. We produce CO2, about 100,000 tonnes per annum. But we... focus on cleaner fuels we we focus on the efficiency of our operations of our sites and of course we're adding more and more solar through 2020 we will be building a five-year plan to to basically address that fully with an objective to eliminating it i.e that impact over the coming years and we will obviously be able to bring more clarity to that in the report for 2020 results that is our commitment Next, please. It is important to remember that the business has a strong backdrop. GDP, strong GDP in the continent is something that we have as a heritage and something that is recurrent. Population growth is something also that is in the DNA of the continent, and that drives growth and consumer spending. And that is how our business has grown. It relies on these two elements. And if you look at since inception in 2012, the weighted average of the growth of the Vivo Energy market is about 3.8, let's say 4%. And if you compare it to US and European average of 0.5, it means that we have potential, and we have grabbed that over the years. So yes, we have seen weaker years, and you can see them on that chart, but it is not a permanent trend. And we know that 2020 is announced to be stronger, and we will see what happens. But whatever happens, we will grab the opportunities. Next. Another point which is important that we just don't rely and wait for the market to grow. We have actions and we have to adapt and there are these three elements which are important. The digital side, we have now a very efficient ERP and we're plugging in as much as we can in order to expand the digital platform. That is what we're doing and we started doing it even in 2018 because we know that will make the difference. knowing better your client, bringing more and better what he wants at the right time, or she wants, that will make the difference at the end of the day. So that's what we work on. And we can see that through loyalty programs we've launched, that has already started bringing colossal impacts. On the Black Friday, which happened a couple of months ago, we had a spike in sales because we used loyalty through promotions to attract more. And there was a massive spike of sales. I mean, it's something we never used to do. But now we do it because we know better. We have more information on who buys where and when. So that's a strength. The other point which is important is... the curb offering, i.e., all our partners around food and convenience that are now coming on board and want to work with us more and more because we've signed quite a few JVs, well, that will also enhance that offering to our client at the end of the day. And we will continue expanding these partnerships because that brings value to Vivo, to our shareholders, and, of course, to our clients before that. The markets are attractive, and we see more and more players interested in these markets. So we see increased activity of people. Therefore, it's challenging. Why not? It's good for us. It keeps us awake. We have new entrants. We have also people who decide now to rebrand completely. Well, they're welcome. We will fight them in the same way as we fight any competition. We will offer better services, better offerings, and we will make sure we're top of the class in the HSEC domain. You know, we have leading brands, Shell, Engine, and all the other partners around us in food and otherwise. And with that, we will keep ahead of the competition. And that is the way we do business. Next. Engine, well, I can say we're very delighted of this acquisition. It's just 2019, so 10 months of ownership by Vivo. So that's no major surprises, I can say. And progress has been fairly swift. We're talking here of 10 months. since in 2019. We've already rebranded 14 sites in Kenya. We've opened in the eight countries we took over, the new countries, we opened 15 new sites. We refreshed, as we call it, or gave it a refurbished look to 83 sites. So a lot of work happened. We changed an important number of teams, be it country leadership, country leadership teams, or managing directors, or even below. because we knew we had to inject new blood. And that was basically what we did in Shell. So we did it also in engine. That is nearly finished. We have, I think, 20 more jobs to fill in in the coming weeks. We've filled in, how many did we say, Herman, remind me? 129 vacancies today. Yeah, but how many did we fill in?

Oh, from Beckford.

Yeah, 48. So, I mean, a big, massive change when you realise what the population was. So, it's good because you bring change, you bring new blood, you bring new talent. Basically, it drives that momentum which is necessary to these new acquisitions. On the commercial side, yes, there are big opportunities in mining, industrials, et cetera, in some countries where the market share are very low. We are working on it. We already won quite a few... Big tenders, one of which was quite massive, and it will carry on to the end of the first quarter of this year. So that's pleasing to have. But again, at the same time, not only are we building, bringing in new blocks to the edifice, but we have also delivered strong financials. It's good to have as well. So yes, we remain optimistic when it comes to engine. Next, please. So 2019 was good, but we could always do better. It's not the end of the road, the end of the story. We can do more. We have to focus on what you see, these four areas in 2020. As I talked about earlier, there is a lot of potential in the engine world. We will unlock it and we'll bring it to vivo. We've just started, as you saw. The retail volume in the existing businesses was a bit weakish, as Johan mentioned. Well, it ramped up already in the second half and the last quarter, and that will continue to ramp up because we have cleaned up the house, as we say, made sure that the mistakes that happened don't happen again. So that... will ensure that it carries on in 2020. The two bottom parts are important. It's the food and convenience offerings that has to carry on. That is ultimately, in the years to come, a big contributor to Vivo Energy. Building up, you know, it represents 3%, which is not 3%, if I'm not mistaken, to the pie I saw earlier on, well, which is not insignificant in view of our size, but it will carry on. It will carry on, and we have to push it. And also, we need to carry on being ahead of our peers in what I call technology, innovation, digital, because that is what will make the difference, and I think we have... an edge and we have to push it now to the new frontier every year every month every quarter things are changing so fast we have 800 000 clients customers that visit us every day on our sites well we have to serve them better differently and to make sure they repeat and repeat and repeat the visit next so uh 2020 in summary We expect it to be a good year as well, with mid-single-digit gross cash profit growth, because that's what we have to deliver to our EBITDA, our adjusted EBITDA. Sorry, here we're talking gross cash profit, but that comes all the way down into the profit and loss. But again, that is built on opportunities. We have opportunities in the engine countries. We have opportunities in the shell countries. We have opportunities you never know when it comes to merger and acquisition. One day it will come down our way. Well, we will look at it, and if it makes sense, we will grab it, like we did with the engine opportunity. So it means that we are in a good position, strong position, good platform, and we will build more for the benefit of Vivo and, of course, our shareholders. Thank you very much. No, you can stop clapping. It's okay, it's okay. Right. I pass the microphone back to Giles.

And sit down. Thank you. Thanks, Christian. Thanks, Johan. We're going to move to the Q&A portion of the presentation today. So first of all, can we just see if there's any questions from the room? Nick, over to you first, please.

Thank you for taking my questions. I have three. The first one is on volumes and margins. I know you change your guidance to gross cash profit. I was wondering if we assume a $50 oil price environment, which is where we are right now, would it make sense to presume that there might be some upside to margins from deregulated markets and overall volume upside across the retail business that would more than offset any maybe downside from commercial because of coronavirus. That's the first one. Second one to Johan. With the Fed cutting down interest rates yesterday, do you think that the time might be appropriate to go to debt capital markets in order to to adjust your capital structure. And the third one is on looper guns. Volume is a bit weak year over year, especially in the shell business. I know that that's a market that you had higher aspirations in terms of growth. Obviously, that's not the case now. Do you want to maybe speak a bit about that? Because I think if there's volume upside, there will be quite a potential. Thank you.

I don't have my microphone. So yes, on the first one, if you look at the slide that Christian presented, deregulated fuel market is only 20% of our business. So it's not big enough to move the needle, and it's really driven by competitive dynamics in terms of how do we price in a lower. oil price environment. And generally, we always said, especially given that 20 of our 23 markets are regulated, we actually are not really correlated to the oil price movement. So that's just the first question. Commercial, with the virus, you know, You know, we have some aviation and marine business. Aviation is only 4% of our business. So, again, we don't see massive exposure there. It's still early on, and Christian can maybe add something on the coronavirus potential impact for our business. On, you know, debt cap to markets, yes, it's something that we continuously monitor and will continue to do so, given that, you know, where the market is now, it's – something that we looked at before, and all I can say, we continue to monitor that very closely. In lubricants, I think, yes, last year was a challenging year, but as we said, it was mostly driven by one of our largest markets, and especially in the B2C segment, where we saw a significant drop in the volume, and again, we expect to see recovery in that and see volume pick up in this year. So I don't know if you want to add something to that, and I hope I answered your questions. Thank you.

The coronavirus, you wanted some explanation? No, not at all? Okay, fine. The lubricants business is very, it reacts so, in some of the big markets, and we've got three that are quite significant, It really reacts instantaneously. People are very sensitive to price, and I mean very sensitive. You'd be surprised that the prices don't change that much in the B2C channel because the sellers in that channel don't change their price. Even if we change the price, they don't. They keep it constant because the little mechanic guy who buys from the dealer or reseller, he doesn't pass that small change, even if it's a dollar or a cent, which we think is, oh, it's important for us. But for that person, he doesn't want to hear of that. So the price remains fairly constant. When you have importations, for example, from exotic places that come and show a significant drop of pricing, then automatically the cursor just goes like that. And you have to fight very hard to keep it. So you have two solutions. You squeeze your margins and you follow. Or you say, I'm very sorry. I will not squeeze my margins. I will make sure I'll defend, blah, blah, blah, blah, blah. So anyway, so it's a mix of one or two or three. In one of these countries which Johan was mentioning, well, there was a big, big, big, big door opening from importations, right? And therefore, as we are, and we still remain virtually the market leader in that segment, well, we were really hit. And we had to adapt and change our marketing, our distribution channels. regroup, et cetera. So there was a lot of hard work that was done in 2019. It was rolled out from September 2019. We will see the full benefit in 2020. But again, I was there last week. Oh, sorry, I mustn't say that. I was there last week. And again, we have to tweak it again. Because there is nothing static. It's changing every day. And now with the barrel at 50, the dollar at whatever, et cetera, all this is moving in all directions. And you have to be reactive and change. It's not only a question of saying, oh, I'm the best in the world, you will buy me. Well, yeah, at the right price.

Next question, James.

Yes. Thanks, James Hubbard from Numis. So thinking about first half this year, net debt, is it all about... I mean, all else being equal, is it all about Kenya? Does Kenya now become an 80 million kind of swing factor and depending on whether you win or lose the next tender round? So there's that. And then you mentioned the CO2 emissions. I'm wondering, do you... All the trucks that you use, which I believe are third party, but under your supervision, close supervision, do you include the emissions from those trucks in that calculation? The trucks, yes.

The deliver on our account, yes. That is the bulk of our emission. So the ERP, for example, has brought a massive benefit to all this. Why? Because it has allowed us to to become smarter in deliveries, regrouping deliveries with different sites, with different destinations, reducing the kilometers, blah, blah, blah, blah, blah, blah, and making sure that you load the trucks to the maximum, right? And we also have now put what I call site automation, which means that we have visibility on the stocks in the site, so you can drop products, right, make sure that your trucks are full, and therefore optimize also the loads, right? So all that indirectly reduces the kilometers and increases the number of tons you deliver per kilometer. So that is positive, and that is why I think I mentioned it. The sum of the Shell countries plus the Enjin countries, the emissions are actually lower. So it means what we've brought in from Enjin did not, it means that Shell has been dropping. But we need to go further, and that is the work we're doing now and for the next six months, basically to say, well, how do we reduce that to, you know, a dream of a zero in the coming five years? And that would be our ambition. But we will talk about it more, as I said, when we announce our results for 2020, because that will be a plan and it will be a commitment in an annual report and saying this is what we're going to do and the following and the following and the following. What was the other one?

So on your first question, the simple answer is yes. And maybe to add, given that it does create a lot of noise and doesn't really help us explain the underlying cash flow of the business, so we engaged the industry and the regulator to see if we can actually create a level playing field that would reduce the noise. Now, unfortunately, I can't commit that it will happen this year, but we are doing our best effort to find a way to actually create that level playing field this year. So we'll keep you updated on that.

How often are the Kenya tender?

There's about three a month. Okay, thank you. Depending on the different fuels. So there's many. It's a large quantity, is it? Yes.

And it's competitive tendering? So we answer to these tenders for the industry. So we participate. We either win or lose. And behind us, we get the backing of suppliers. Some of them you've heard of and others you haven't. Well, they're mainly reputable ones because we can't play.

But essentially, you may not win the next one. Yes, exactly. And you may not want to win the next one.

The first half of 18, we didn't win much.

And if that happens, then there's a potential 80 million working capital reversal on the back of that, right?

Yes, exactly. That's exactly what happened.

Thank you. We've consistently won a number, and that's how we plan, even. Every year we sit down and say, the Kenyan team knows they have to win, and also they're evaluated on that. Now, as I said, it's just a bit cyclical, and it's not predictable.

I mean, our objective is not only to win because of the financials, which you bracket. It also brings you an advantage when it comes, and you're more competitive in some segments where because we had not been winning, we had to move out. You mentioned resellers and all that. It's good to have access to quantities which are yours and enable you to price them effectively in order to be able to compete in that segment. By being absent, you don't have that flexibility. So there are two reasons why we need to be present. But then, you know, you're talking here of one sense. Thanks.

Are there any other questions in the room?

Hi. Good morning. Sorry. Next one is here.

It's Harry Gowes from JP Morgan. Just wondering on your expectations for Shell branded retail volume growth in 20. Will it be the same as 19? And obviously the balance sheet is pretty strong now. So just in terms of M&A, what kind of assets are maybe available out there?

What was your first question? I didn't hear it. So going forward, we'll just guide as Viva Energy. Oh, sorry. Because we believe we're one company now, and we have two brands, so we won't distinguish between the two brands. So that gross cash profit line is, you know, what Christian mentioned for the whole group. So we actually are stepping away from, you know, disclosing engine and shell-related numbers. On the balance sheet and M&A, I think, as mentioned previously, we are actively looking. You know, it's something that, you know, its engine was our first significant acquisition, but it was the first in seven years. So there's no pipeline of 20 deals that we're working on. But it's something, and that's why we also, you know, again, to talk about the debt capital markets, but why we keep our flexibility on the balance sheet is if there is something and it's sizable, that we can actually use our balance sheet to go after the acquisition.

Yes, please.

Hi, thank you. Thomas Streeter from Streeter Investment Research. Just a quick one. So I noticed you rebranded some NGN sites in Kenya to Shell. So what was the reason? And would you do that in other countries? And is it just a stronger brand?

Where we are present as Shell historically through the Shell purchase acquisition, we cannot have two brands. That's the agreement we have with Shell. So automatically we had to rebrand. Okay, so we rebranded the Shell sites. I think there's still a few to be rebranded. No, maybe not that many? Okay. So that's one. The engine countries, there is no obligation. So we considered at this stage that it's good to keep. Because it's a fairly strong brand in the east and southeast because of the weight of South Africa.

And maybe just to add, we actually have two license agreements. So we have a shell license agreement and we have an engine license agreement for the engine countries. And both were initially 15 years.

So you wouldn't really be changing any more in the future then. So it's just a technicality really. All right, thank you.

Questions in the room? If not, should we go to the line operator to see if there's a question, please?

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. Once again, please press star 1 to ask a question. We will take a question from Nick Coulter of Citi. Please go ahead, sir. Your line is open.

Hi, good morning. Thank you for taking my questions. Two, if I may, and apologies. They're both financial. Firstly, on the dividend, could I ask if you expect the dividend to grow in line with earnings or indeed slightly ahead in future years? And then secondly, on the tax rate, please can I ask regarding the medium-term outlook and whether we should expect that tax rate to begin to ameliorate in future years. Thank you.

Okay. Hi, Nick. In terms of the dividend, we actually will – we're not changing our policy of a minimum 30 percent payout, but progressive. And I think the signal we're sending today is that, you know, we're confident that we can pay more dividends and it can be progressive so that the 35% payout is just a reflection of the results. At this point, there's no change in policy, but when and we will do, we'll come back to you, so that the minimum 30% progressive remains in place for now. In terms of the tax rate, as I said in my guidance for next year or for this year, we don't see any change in the 39%. We do, given that it is a relatively high tax rate, continue to look at ways to reduce that tax rate. And again, we don't give medium-term guidance, but I guess we will do our best effort to bring that back to a lower number, having said that. We always said that kind of 35 percent is the level that we will hopefully reach in the medium term, because below that, given a corporate income tax of 28 percent on average in our jurisdictions, plus the tax we pay on our dividends upstreaming, which is about on average 7 percent, that gives you kind of a minimum of 35 percent, and we won't be able to really – unless the corporate income taxes start lowering across the continent.

But it sounds like that 35 percent or mid-30s ambition is still very much intact.

It is intact. What I'm saying is that we don't – I would say for the longer term, yes. the near to medium term, you know, it takes time to bring that down. Because as I said, Morocco, you know, if Morocco continues with their 2.5 percent, you know, exceptional levy and becomes, you know, rather than lowering corporate income tax, actually higher income tax, then it will be harder to reach that 35 percent.

Thank you.

Thank you. We take our next question from Terra Partners Asset Management, Admire Malvolwane. Please go ahead.

Thank you for taking my question. I think the first question relates to Ghana. I might have missed it, but I just wanted to try and understand what sectors could be contributing to the lower volumes, and is that only Vivo or the home market? And the second question relates to the Morocco competition inquiry. If there's any update and what is the expectation in terms of the direction the market will take? Will the government reinstate related prices?

Yes. Thank you for the questions. I'll take the first one, and Christian will talk about Morocco. So in Ghana, what we mentioned is that we, just like we did in Uganda in the first half of 19, we went for maximizing our gross cash profit, and we mentioned price leadership in the presentation. So actually, we are willing to capture that extra margin and sacrifice a bit more volume because it allows us to really maximize the top line. And so, you know, that's why we're saying we are the market leader in Ghana, which is a deregulated market. And so that is the reason of the negative volume growth in retail.

OK, thank you. I have to separate two issues, because you mentioned prices and regulation and then the competition board. The price issue, which was in 2018, was an action by government following social media or whatever pressure on a few players. And therefore, there was a lot of noise about regulation and whatever. That is behind us, because the government received a position paper from the Competition Council, actually, on that, saying there is a law in place, you have to abide by it, and all the players have to abide by it, and that's it. So we moved on, and that is behind us for the time being, and there is no, this hasn't been reopened since then. So it goes back to middle or early 2019. The second issue is the Competition Council. launched an inquiry towards all the industry players, which is more than a year ago, and they have investigated practices. And they came back to us with a certain number of issues, and we came out with a statement in January on that matter, As of today, there is nothing new compared to that information we gave you in January. So we are still in that modus operandi, or that status quo. And if there is anything new, believe me, we will come to you and give you the latest update. That's all I can say.

Thank you. And then two more questions. How much did you spend after in terms of the refurbishments and the new opening of the new outlets? And how much do you expect to spend going forward from the refurbishments? Then the second question relates to your major shareholder, a vital group. In your assessment, Does some of the negative press that comes out of that invite affect your share price when you look at it? And how does it affect your relationships with governments and other players?

On your first question, we actually don't disclose the granularity of our capex spend by refurbishment of engine and growth, so the 150 to 160 covers the whole portfolio.

And Vitol, I think Christian... Vitol is one of our shareholders. If you have any questions, please address them to Vitol. It's not for me to comment on any shareholder in these forums or any other forum.

Okay. On the question of engine, we just wanted to evaluate how much more you're going to spend on it after acquiring it.

I think the shining, the 80 sites we refurbished, that's now finished. So, you know, the growth capex will be again spread between engine and shell and and the 80, 200 sites again is for the group. So as I said earlier, we look at it as we are Vivo Energy and we trade under two brands and we will make sure that, you know, we will drive performance across the board. And that's how we look at the business, so we don't want to get stuck in... It's a question of opportunity and growth.

We cannot segment and say we will only spend so much on this one and so much on that one. If there are opportunities that by far outstrip whatever what you see on the other side, well, you will put your money, because it's a question of timing and speed. and efficiency. So that is how we manage it. And if engine is faster, or sorry, the opportunities in engine countries are faster, but so be it. We will spend faster there. But then there is no year that looks like the other one. So that's why we keep it as a 100% sum. And we are located depending on opportunities. And we commit ourselves to do a minimum of 80 to 100 sites per annum. That is what is our contract with you.

OK, thank you.

I think that's all of our questions from the line. Unless there's anything else that's appeared in the room, I think we should call a wrap here. And thank you very much, everyone who's dialed in and attended, and Christian and Johan, and we look forward to speaking to you in the not-too-distant future. Thank you.