Vivo Energy plc

Good morning, everyone, and welcome to Vivo Energy's 2020 Interim Results Conference Call. Sadly, we aren't able to do this presentation in person, but for those, dialing in, the slides are available on our website. With me are Christian Chamas, our CEO, and Johan de Prater, our CFO, and we are socially distanced in one room, so hopefully you can avoid any technology issues this morning. I won't talk through the disclaimer on slide one, but I will go through the format of the morning on the next slide. So on slide two, Christian will give a short introduction covering our performance in the last six months and some of the impacts of COVID-19 before Johan goes through the operations and the financials. Christian will then cover our progress against strategy before we head into Q&A from the Lions. With that, I will hand over to Christian to take us through slide three.

Thanks, Giles, and good morning, everyone. We're living in unprecedented times, and I hope that everyone on the line is safe and well. When I last presented our results to you in March, we were optimistic about the future. We had delivered a solid 2019 and had started the year very well, with two months of 20% increases in gross cash profit under our belts. At the time, COVID had barely appeared in Africa, but we had already taken steps to protect our people by banning travel and following WHO guidelines. We will talk through the impacts of COVID in the coming slides, but I'm particularly proud of how our team has reacted at all levels of the organization. We have kept our people and our customers safe while continuing to provide our essential products. I can't stand here and say that the worst is over, as we don't know what lies ahead, but we are cautiously optimistic. We have seen a strong recovery in June, which is continuing in July, from the lows in April, and most of our business is moving back towards normal operations, although remain behind pre-COVID expectations. We have weathered at least the initial storm, helped by our strong balance sheet and continuing resilience of our business. Before we talk about our business, I want to touch on the Moroccan Competition Council, as this is a topic that is a major focus to all. Last week, there was a hearing as part of the process. Despite some media coverage in Morocco, no decisions have been made. The Competition Council will come to their conclusions in due course and we do not have a timetable for that. We maintain that we have always conducted our operations in accordance with the applicable laws and regulations. Moving back to what we control, our response against COVID-19. We have always placed great focus on health and safety and we reacted very quickly to the threat from the pandemic. Whether our staff are in their offices, depots or on site, we have put in place actions to protect them and make sure that the business continues to function in order to serve our customers in a safe and responsible manner. We have also adapted our sites to make them safer for our operations and our customers with increased cleaning standards and distancing to make sure they feel safe when they come to us. We have also invested in our communities across a wide range of projects, with donations to relief funds, provision of fuel, food and medical supplies, as well as utilization of our blending facilities to produce hand sanitizer. Our response has varied by country, reflecting the different needs in each market, but we have consistently made sure that we proactively provided support where it is needed, reflecting our position at the centre of these communities. If we move on... Whilst we haven't yet seen the levels of infections in our countries that we have seen in UK and Europe, we have seen an impact on our business as governments impose strict mobility restrictions in late March and early April to stop the spread of the pandemic. As you see from the left-hand map, nine of our countries had a full lockdown in place in April, with other measures imposed across the rest of the portfolio. As we move through quarter two, there were progressive easing of measures as governments took the balance of health with economics. At the end of June, there was no nationwide lockdowns in place and a number of curfews had been lifted, easing mobility, which in turn has driven a recovery in our volumes. We're not back to full normal yet. Many borders are still closed, and there are targeted lockdowns and restrictions in place in several countries where there have been spikes in cases. But generally, the trend has been positive over the past few months, and you can see on the next slide our month-on-month performance. We have talked to the strong start of the year, held by engine, and then the impact of COVID-19, which you can see on the chart. What is very pleasing is the pace of the recovery as restrictions are lifted, demand has returned very quickly, other than in the aviation sector. As you can see, volumes fell by around 40% in April against the previous year, and unfortunately so did our unit margins, which means the gross cash profit impact was much more significant. As we highlighted in the release, the margin impact was due to the inventory effects linked to COVID impact on the demand and the oil price, which are now through with margins returning to normal levels in June. Before you all get too excited for half two, I will caution you that we remain over 10% below our expected volumes in June and July. Case numbers in many of our markets are rising, and we do not know how governments will react and what impact this will have on our business in H2. However, this chart shows how resilient our business is. I will now hand over to Johan to go through the operations and financials. Thank you.

Thanks, Christian, and good morning, everyone. I hope you're all safe and well. Given the challenges we faced during the period, we delivered a solid result. The strong start to the year supported our performance, with 60% of H1 gross cash profit generated in Q1. As you can see on slide nine, the year-on-year volume and unit margins drop are actually identical at minus 7%. Even in April, when both unit margins and volumes were most impacted, we still broke even at the EBITDA level, which shows how resilient our business is. We talk about our diversification a lot, and it really comes true on the next few slides. Looking at the segments, you can see that retail was our most affected segment, with volumes down 13%, margins down 7%, which meant that gross cash profit fell by $30 million, or just under 20%. The falling volumes was due to restrictions, which disproportionately impacted large retail markets such as Morocco and Tunisia, with the margins primarily reduced by inventory impacts. Part of our NFR business remained resilient as we received rents on our forecourts. But the revenue shares on the large outlets fell due to the need to close many of the restaurants during lockdown or indeed shorter opening hours due to curfews as they weren't considered essential shops. The overall impact was a 20% drop. Moving to the commercial side, we managed to achieve flat year-on-year volumes, which, given the circumstances, is an excellent result. The LPG and mining business offset the impact on the aviation and marine businesses. This was helped by an additional two months from engine. On the margin side, the primary impact was again the inventory revaluation as it was spread across both retail and commercial. Finally, the lubricant segment held up better than the commercial side, with volumes and margins flat on the previous year. Retail lubricants were hard hit as sales on forecourts fell due to less people coming to sites, but our diversification came to the fore again, both in sales through distributors and also to commercial customers such as miners, as well as exports. Page 11 builds further on what I've just said. Our diversification provides real resilience to our performance. You can see that the impacts of the restrictions vary by business line, and this chart shows year-on-year gross cash-it profit changes. The most resilient businesses were less than 5% down year on year, with both commercial fuels and lubricants supported by the strength of sales to mining customers. LPG is sold both in bottles to households for cooking, which is around 80% of the business, with the balance being bulk sales to industry and hospitality. The bulk sales were impacted by lockdowns, but we saw a surge in households consuming bottled gas as more people stayed home, which almost offset the weaker bulk sales and drove the resilience of this business. On the retail side, volumes were impacted heavily in both the deregulated markets and deregulated markets, with unit margins also impacted by the inventory effect. Premium fuels contribution remained relatively stable despite three of the five countries in which we sell the products having full lockdowns in Q2, as improved margins tempered the volume fall. The worst hit business was aviation, with volumes down over 50% in the half and over 80% in Q2 as borders were closed across the continent. This business is slowly recovering as borders open and local flights restart, but will take time before it returns to its previous levels. This is only a smart part of our business and was originally expected to be less than 5% of our gross cash profit in 2020. Looking in more detail at the unit margin on page 12, we have again demonstrated the resilience of this. Even with the unprecedented drop in both demand and the oil price resulting from COVID, our inventory write-downs were limited to around $50 million, or less than 5% of our average inventory holding during H1. Given volumes were lower than normal, this represented around $3 per cube during the period. As Christian shown earlier in the presentation, this was very much a one-off impact and margins have returned to normal levels in June and current July trading. If just the oil price or demand had fallen, then we wouldn't have had this issue and it is not something we would expect to repeat. We also took additional impact on unit margins due to the accounting for the continued hyperinflationary environment in Zimbabwe, which is being treated as a special item. If we were to exclude these two events, margins would have been almost in line with the previous year, even with the lower volumes. Our opening leverage normally works in our favor as we grow our volumes with limited incremental extra costs required for every new liter sold. We also run a very lean business with our adjusted EBITDA to gross cash profit margin, our equivalent of adjusted EBITDA margins, running at almost 60%, plus the cost below gross cash profit being largely fixed. Unfortunately, with the lower volumes, this works against us. And so the lower gross cash profit flows straight to the adjusted EBITDA. And in H1, we had the added impact of two months of additional engine G&A plus increased COVID-related community spending, which compounded the drop. The lower adjusted EBITDA then flows to lower earnings with slightly higher expenses due to the increased use of working capital facilities and a higher effective tax rate due to the function of lower profits and some tax items not linked to P&L such as withholding taxes contributing to the net result. As we sell high value product, movements in working capital have a major impact on our reported cash flow. As reported in March, at the end of 2019, there was $111 million of payments that fell into 2020, benefiting the year-end. But you can now see the opposite effect on HO1 cash flow. If you were to strip this out, we were cash flow neutral at the operating level, even with the lower earnings contribution. We don't normally show the month-on-month movements in working capital, but given the events during the period, we felt it is important to help explain what happened on a monthly basis. You can see this on page 15. As you know, we have a structural negative working capital position driven by a retail business of around 15-day sales. You can see this in January and February, but when demand started falling, you can see the shift and the business moved to a positive working capital position, peaking in April. To address this, we reduced supply and managed our credit exposures carefully. And as volumes recovered, we've seen an improvement in our net working capital, which by the end of the period returned to a negative position. Due to the working capital movements I've just talked through, it was a challenging period for us, and this highlights why we run a conservative balance sheet, which provides the flexibility to get through unforeseen events. We have seen an increase in the net debt to adjusted EBITDA since period end. But the primary impacts on that have been the $111 million of payables that flattered the year end and the $72 million lower adjusted EBITDA in the first half. As you can see, our leverage remains very conservative. We have continued to pay back our amortizing loan, but drew down a portion of our RCF to provide flexibility if it was required, given the high level of COVID uncertainty. Moving on to CAPEX on page 17. With the market environment, we took the decision not to commit new capital, but to continue with projects that were already committed. This meant that CapEx had fallen by around 10% against the previous year. Although as part of our recovery plans, we have continued to make sure we have purchased long lead items for H2 projects. The focus was on growing the network and our offerings whilst making sure we had the most attractive sites in the market. Following the success of Shining Engine, we have also rolled out this program across our shell markets and completed the Shining of over 100 sites, which should provide benefit as we move through the next few months. Finally, we are greatly encouraged at the shape of the recovery we have seen in the business since the April lows. To date, this has continued into July, although volumes remain below original expectations for the period. We are, however, still only weeks into the recovery, and with the rising COVID caseload, it is unclear whether there will be a new measure in post or a delay to the relaxation of measures. Whatever happens, we will be prepared, but it is too soon to reintroduce guidance to the market at this stage. In a similar way, it is regrettable too soon to restart our dividends. However, our business is strong and we recognize the importance of dividends for our investors. If the recovery is maintained, the Board intends to restart dividends in Q3. I would now like to hand back to Christian to complete the presentation. Thank you, Johan.