Rubis (RUI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Rubis' Q1 Trading Update. [Operator Instructions] I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your speaker, Bruno Krief, CFO. Please go ahead, sir.

Thank you. Good afternoon, everybody, and thank you for your time and interest in Rubis. As always, I will first present to you Q1 trading, focusing on the main points of the current business development. And thereafter, you will have some time to ask me some questions. I'm reminding you that I'm now joined by Anna Patrice and she's available as well post the call to answer your questions. So you have a chance to look at the press release that was sent to you a few minutes ago. And as you know and you can read and see from all the news, COVID is still there. And we are comparing the Q1 '21 with the same period last year when COVID and all the lockdown measures were only starting to take place. It's fair to say that COVID impact last year on Q1 was minimal as it started, as you remember, towards mid of March. I can say -- I often told you, we are not worried at Rubis as Rubis shows impressive resilience, thanks to its business model, a business model with the current capacity that you know, multi-segments, multi-geographies and highly fragmented end user base. Q1 2021, I would say, is not an exception and things have improved. As usually, I will not comment much on sales that you have on the paper, on sales developments, thus more, of course, on volumes and gross cash flow, which are the most important. If we take a global view, total group for the energy business that is, as you know, combined distribution and support and services is stable in terms of gross profit. While storage is now accounted as a JV, it has an excellent start with a 6% organic growth. And coupled with the Spanish acquisition of TEPSA last year, it brings us to 44% increase in segment or storage revenues, of course. Let's look more precisely at Rubis Energie. Obviously, you have the table on the press release, of course. Obviously, aviation is still impacted by COVID and restrictions put in place. But adjusted for aviations, volumes are more or less flat with just 0.8% decline. This is, I would say, sequential improvement, as you remember, that in Q3 and Q4 2020, adjusted for the aviation segment, volumes were down 4%. Of course, there are differences in the regional developments. To start with Europe, where you have stable volumes and improving margin, as you know, this region is dominated by LPG, and cold weather is always positive for the heating season. That was the case, of course. The Caribbean, this is a region that is most affected by COVID in general because of exposure to aviation and to tourism. So volumes are down 14%, but adjusted for aviation decline is only 6%. And as a reminder, last year started very strongly in the Caribbean region with plus 6% volume in Q1 2020. I would say that now with the rollout of the vaccination in the U.S., we expect and also we are witnessing the situation with touring to gradually improve and support the region going forward. Haiti, which is part of the Caribbean region, it still remains challenging, as you know, and account for most of the revenue decline in the region. Let's go to Africa, which has shown a good momentum with flat volumes year-on-year and a 4% increase if adjusted for aviation. The bitumen business, which is mainly in Western Africa, has been very strong. And now we also see improving situation in Kenya and Eastern Africa will return to volume growth in the petrol station network. Similarly, margins are continuing to improve nicely. Support and services segment. Here, as you know, the nature of the business makes that we do experience some volatility in volumes, as you should get used to already, meaning that volumes are down 30%. Thus, the most essential point is cash. Cash is king, of course. And here, the product mix has led to an excellent cash profit developments or margin developments with double-digit growth. And last but not least, Rubis Energie. All countries and products within the JV have performed very well, supporting 6% organic growth. And we are quite satisfied or more than quite -- very satisfied, let's say, with the acquisition of TEPSA, the storage operation in Spain. As a reminder, they have very interesting product mix with significant part dedicated to the chemicals, and they also have exposure to biofuels. So we have very good underlying development of TEPSA, and it's supported overall by historic revenue growth of 44%. The ARA Zone also was strong, plus 16%. All in all, we enjoyed an occupancy rates of 96%. ESG is becoming an important part of our business and communication. So we are now quite experienced with that. I would like to highlight and remind 3 main points for the first quarter. First of all, we have communicated our objective of 20% reduction in CO2 emissions by 2030. It is very important to note that the reference base here is 2019. So we don't take into consideration all the previously fought battles to decrease emissions. Another important step, as quite a few investors are asking about it, is the CDP questioner, the Carbon Disclosure Project, as you know. This is a significant amount of work. We have started this project last year, and we should complete it in the coming months. So by the end of the year, you should have a completed CDP report. Thirdly, and to be sure that all parties' interests are aligned across all dimensions, including ESG or RSE. We are working on Rubis road map to implement RSE across all subsidiaries and countries. This roadmap covers '22 to '25 -- 2022 to 2025 and will become public later this year. What is very important, implementation, obviously. The road map will be one of the criteria for the variable compensation for both managing partners and the top management of the group. So again, as you can see, we are taking this issue very seriously. Just some words on the outlook. As you know, we don't give detailed quantitative guidance. At the same time, it is important that you understand what should support our future growth. Of course, we do have the M&A potential. And for that, you know that we have sort of EUR 1 billion of financial fire power. We do look for that of our core business, but also at various auctions to enter the renewable energy sector in geographies -- in developed geographies where we are already operating in. We remain quite quick regarding strategic and financial criteria, but we don't exclude in-roads or new venture or early-stage projects representing promising concepts in the renewable energy sector and still having the attributes of niche, I mean, a key player being in a position to use the existing and proved technology and basically being a service provider. And of course, we are always looking for organical growth opportunities. Bitumen is one of the areas that provides huge potential in the long term. Even all required infrastructure works to be done in Africa, we need to do our homework already now to be prepared. You can see from the sales update and results that we are very well positioned to further expand this bitumen business outside Western Africa and when conditions are met to duplicate this successful model in Eastern Africa. Just a quick update on our development in Eastern Africa. As you remember, we took over the business, I mean the KenolKobil takeover that was underinvested over the past years. COVID has led to certain delays in the refurbishment program, but we are back on track with some 50 stations already done, comprising rebranding, retail development, improvements and focus on convenience retail, and the rest beyond 50 stations to be refurbished between 2021 and 2022. I would like to underline that the first signs are very encouraging with material increase in throughput per station, and we are also putting a special focus on increasing the nonfuel revenues, which has a big potential in the years to come. [Foreign Language] I think I covered all the main -- I hope I covered all the big topics. And to sum it up again, we will see sequential improvement in both these investments. Margins or unit margins remain strong and continue to improve. As you know, Rubis does not have -- only -- does not -- not only refining capacity, but also several growth drivers, both organic and M&A. And we have strong balance sheet to see this happen. ESG is an important part of our thinking and everyday life. Finally, I would say that Rubis' April volumes won't surprise you if compared to 2020, of course, but the comparison this 2019 are very promising, plus 9%, excluding aviation. So this is the last point. And I would say now floor is yours for the questions you might have. Thank you.

[Operator Instructions] And your first question comes from the line of Emmanuel Matot.

A few questions. Let's go one by one, if you want. Could you repeat your last point about volumes in April? Is that correct that they were up 9% compared to Q1 -- compared to April 2019, excluding aviation?

Yes. Of course, because the comparison between 2020, as you can expect, is fantastic, but doesn't mean anything because it was where we were. We were deeply in the phase of COVID restriction. So that's why it is important to compare to a normal year. And from this point of view, we believe 2019 was a normal year, so bigger than the last normal year. So this is the message we would like to [ webcast ]. Without aviation, of course. Aviation is a special case. It's improving. It's really -- we have seen in Bahamas, in Cayman, in all the regions, more and more American tourists, after the vaccination, are very in a hurry to take some holidays and to leave the continent to go to the islands. So it's a very good -- we are witnessing a good momentum in the aviation currently.

Okay. And when you are talking about plus 2% unit margin improvement in Q1 in retail, does that include any evaluation of inventories?

No. But I'd say it's the -- the true answer, the true answer of -- as you know, last year, we had also the impact on losses in inventory, right? This year, we have experienced over the past 4 to 5 months a catch-up in prices. So it is the way calculation is made at constant and same structure. There is no change in the way it is calculated. It does include, of course, the inventory effect, which is positive in the last quarter mechanically. There is a difference between the negative impact last year and the recent one is that last year it's extremely violent in a very short period of time while here the prices have been increasing since, I would say, September. So it's more gradual.

Okay. And could you explain the positive mix you had in Q1 in support and services? And how can it drive so much the level of the gross profit?

It depends -- yes, it depends on the -- we are trading various segments of products, fuels, LPG, bitumen, among fuels, various categories of subsegments. And I would say that bitumen has been quite strong. I would say that LPG, which is a good margin product, was also increased during the quarter. So these are between the 4 categories of products that are presented to you. The product suite was more profitable, making that it's more than compensates the reduction in volumes. And at the end of the day, we have the strong increase in the margin -- gross margin generated in support and services. You must be now educate on the support and services division. The business, the operation we are making are not as solidly established than the retail operation, which are based on a very solid business volume. Here, it's trading. It's wholesale. There is no contracts, but you can take advantage of opportunities in the market between the Caribbean, between Africa, in the bitumen. And you can get quite big volatility and improvement in margin from one quarter to another quarter. And you have noticed that in the past it's more volatile. Volumes are more volatile in this division. The most of the -- the trading operators, even the largest like Vitol and Trafigura, we are not comparing to them, but it is -- we have unique hope because in this business has been experiencing a very strong year and quarter and period. Emmanuel?

Yes. Do you hear me?

Yes.

Yes, sorry. My last question, when do you plan to resume your share buyback program? What do you need to do so?

To make the story short, we launched the program in January. You know that the AGM in December, it was voted for a period of 18, 1-8, months. So the idea was to manage the momentum, to manage the operation of this share buyback over this period. So as we explained, we did a quite big amount, some 40% or 45% during just 3 months. So we will monitor rates at the amounts over up to 18 months period. So I cannot tell you exactly when that you can make the calculation. We have more than 13 months ahead of us to proceed with the share buyback.

Our next question comes from the line of Jean-Luc Romain.

I have 2 questions. I would like to come back on the very strong support and services margin. You mentioned strong margins for LPG. Did the Uri weather event, which, in effect, strongly favored the trading profits of oil companies, and you mentioned the traders such as Vitol. Did this event have an impact on your profit? That is my first question. There was a very cold weather in the U.S. And this impacted strongly the gas markets in the U.S. And I was wondering if it could have had an impact -- a positive impact, of course, on your first quarter margin for the support and services business?

This -- you have to understand, this LPG operation trading are mainly focused and associated in the Caribbean region. You must know that, in the Caribbean region, following the departure of the big oil companies, let's say, 10 years or 15 years ago, they are controlling all the trading operation in this region. They have left that. And today, basically, there are 2 operators in charge of the trading and the supply of this -- the Caribbean islands. These are Parkland Fuel, after they took over SOL, and Rubis. Clearly, we probably account together for 80%, 8-0 percent, of the total supply of the whole region. So this is where we are. Of course, price volatility can impact the operation. But I want to underline something, we are never taking debts or taking speculative position in what we -- in the support and services division for this. It's back to back. It's going to be very clear when we purchase lots of cargo of LPG or either fuel or crude, it's already back to back with the end customer. So this is the key element to -- for everybody and for Rubis is crucial not to take bets or risks in this kind of operation.

I have a second question. You've been excluding the aviation business, which is quite comprehensible. What or when or do you already have some early vision of how it might start again particularly in the Caribbean as the United States might reopen slowly? Do you have already a vision on that or expectation for aviation?

You mean for -- how do we see the momentum in aviation? This is the question?

Yes. Definitely. Yes.

Not easy to answer. What is so certain is that the recent weeks have witnessed more demand and April is clearly in the direction. And we know also that the order from tourism for travelers coming from the U.S. continent are stronger and stronger. So we are optimistic that tourism will catch back. And along with that, the demand for aviation will expand that between now and the end of the year.

[Operator Instructions] And your next question comes from the line of Charles-Louis Scotti.

A couple of questions from my side. Sorry to make you repeat, but can you tell me what you were referring to when you say the 9% volume improvement in April? Was it for the Caribbean or for the group as a whole?

No, no, no. For the total volumes. The total volumes.

So total volumes of Rubis Energie, excluding aviation, on a like-for-like basis?

Exactly.

Compared to 2019?

Correct.

All right. On the first page of the press release, you said 7% pro forma year-on-year increase for Rubis Terminal JV. Is it also referring to the gross profit of the business or EBITDA?

No. It's not gross profit. It's storage revenues.

Revenues, right.

We are talking about storage revenues. But as you know, in the Caribbean business, the storage revenues represent the margin -- is the gross margin because it's a fixed cost business. So it's like to hand some revenues.

Okay. And in -- on the African business of Rubis Energie, I'm quite surprised by the strong volumes in Q1. What is driving this very quick rebound? Are there still a lot of restriction in place in Africa?

We have experienced -- there are locally some restrictions here and there. As you know, that's the -- we had a strong bitumen sales over the quarter. And this is the continuity with what we experienced in the previous quarter. Bitumen has been gaining market share. I would say that the retail networks are also improving. It's -- we are now in positive territory, regarding Africa for the service station business. I would say that the lubricants also, although marginal, have been doing quite well. So this is where we have lost most of the benefits and the increase.

Okay. And last question from my side on the terminaling business, there is a very pronounced backwardation right now. Do you expect this to have a negative impact on your storage business in H2?

We have the advantage last year being a very strong comparable period to secure contracts beyond the year 2020 and in some circumstances up to -- beyond the first half. So we have that in hand, so contracts, which are in operation. I would say that the business also is fueled right there by import and exports to Iraq. Iraq needs gasoline and has to export to evacuate some fuels -- heavy fuels. So this part of the segment is not exposed to the contango. And we are also working in developing the depot towards the local supply for local distributor, and this also is -- we are working on that, and it will translate into additional part of the business in the coming months.

Okay. And sorry, one follow-up question. Sorry to come back on the share buyback program. Was it something to abide by any regulatory constraints? Or was it your own decision to put the share buyback program on hold?

It's clearly our own decision to, I would say, to monitor the momentum of the share buyback over the period, which has been settled in the -- during the AGM, which is 18 months. And if we had kept the same momentum of phasing that we have experienced since January, it would have been over after just 6 months. So we have to manage this share buyback along our, I would say, acquisition strategy. And so that's why it's a bit formatted and the resolution is on 18 months period. It's important for us to monitor that in view of our various strategic developments. And we were -- because of the regulation, we cannot advise the broker who is in charge of the purchase to reduce or increase the speed of the purchase. And we just had to stop it and then put it again in place. When? We will decide, but within the period of 18 months.

There are no further questions at this time. [Operator Instructions] And we do have a follow-up from Jean-Luc Romain.

Yes. Actually, could you comment on the situation of Haiti? When we listen to the news, it seems to be quite chaotic. And I was wondering of how you were doing there or faring there.

Well, it's a concern. It's chaotic. And it has been chaotic for some time now. This is why we took some decision in terms of value and the accounting last year, clearly. Now as accounted today, which is important is that there is an agenda for reelection and the current President has accepted to play the game, the constitutional game. And they are planned for February next year. So it's coming soon. We believe there will be some pressure on various parties and bodies, including the United States, the IMF and the various international bodies to secure and to make that the new election brings new governance and the proper governance in the country. After all that, it's a country with a 10 million population, where 40% of GDP is coming from the diaspora mainly located in the U.S. who send money to their family. We are selling energy. We are selling fuels, LPG. Whatever happened and what's happening is complete. Nevertheless, the demand is there. The demand is there. So we have to believe that beginning of next year will be a new chapter in Haiti. And we will -- as you know, we are, by far, the leading operator in the country. And we believe things will come -- be again in -- gradually in order.

This was your last question, sir.

[Foreign Language] So thank you very much to all of you. [Foreign Language]

Thank you, ladies and gentlemen. That does conclude your conference call for today. Thank you for participating, and you may now disconnect.