Viva Energy Group Limited (VEA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to this Extraordinary General Meeting of Viva Energy Group Limited called to consider resolutions to return capital to shareholders and to consolidate our ordinary share capital. Robert Hill is my name. I'm the Chairman of Viva Energy. It's now just after 3:00 p.m. Australian Eastern daylight time. We have a quorum present, and I declare that this general meeting of Viva Energy Group Limited open. Thank you for joining us today from your various locations across the country and the rest of the world. We're holding this general meeting today as a virtual meeting conducted entirely online in light of the continued COVID-19 pandemic. I'd like to begin by acknowledging the traditional custodians of country throughout Australia, and I pay my respects to their elders past and present. Before we begin, I'll quickly run through some procedural matters. If we experience technical issues today that result in a number of members being unable to reasonably participate, the meeting will be adjourned and reconvened at a later time. If this happens, we will provide the relevant details by way of an ASX announcement. Voting on both items of business today will be carried out by way of a poll. Shareholders had the option of casting their vote before the meeting or appointing a proxy to do so on their behalf. If you haven't done so, you can vote at today's meeting online. You can do so at any time during the meeting, starting from now, as the polls are now open for voting. Voting will close shortly after the end of the meeting. [Operator Instructions] You do not need to wait until you -- until we get to the formal items of business to submit your questions. There might be a slight delay in transmission of up to 20 seconds and so I encourage you to start submitting your questions now, and we will address these a little later today. You will also have the option of asking your questions via telephone. I refer you to the numbers that are on the screen. And these are also included in the notice of motion, if you wish to ask questions using this facility. I'm coming to you from Adelaide. We have joining us virtually from around Australia, Singapore and London the rest of your directors: Scott Wyatt, Chief Executive Officer and Managing Director; and the nonexecutive directors Arnoud De Meyer, Dat Duong, Mike Muller, Sarah Ryan and Nicola Wakefield Evans. Nicola joined your Board in August this year, and this is her first general meeting with us as a director and we welcome her. Our Chief Operating Officer and Financial Officer, Jevan Bouzo; and Julia Kagan, our company Secretary, are also joining us online today. I will now move on to my remarks on the business. In early 2020, we completed a strategic review of our investment in Waypoint REIT, which at the time was called Viva Energy REIT. Following that review, your Board determined the Waypoint REIT investment did not form part of the company's long-term strategy and that it would be in the best interests of our shareholders to sell our 35.5% interest and return the -- and -- the proceeds to shareholders. We subsequently sold the holding in February 2020 for a total of approximately $734.3 million in pretax proceeds. Since that time, we have returned approximately $580 million of those proceeds to shareholders through the following mechanisms: one, an equal capital reduction in October 2020 to return approximately $415.1 million; two, a special dividend in October 2020 to return approximately $114.5 million; and three, an on-market buyback in 2020 under which the company bought back approximately $50 million worth of shares. We have consistently said that we intend to return the balance of the proceeds from the Waypoint REIT divestment to shareholders at an appropriate time. We've continued to monitor the impact of the global COVID-19 pandemic on the wider economy and on our business. While certain parts of our business continue to be impacted, our overall business remains resilient. And we've delivered a strong result in the first half of 2021, reporting a group underlying EBITDA on a replacement cost basis of $256.3 million, which is an improvement of $124.6 million on the same time last year. Scott will say more on our performance when he speaks shortly. The company's balance sheet remained strong. And the proceeds of the Waypoint REIT divestment which have not already been returned to shareholders remained surplus to normal ongoing capital requirements of the business. Accordingly, the Board has determined that returning these proceeds is in the best interests of shareholders. We're here today to seek approval of shareholders to return approximately $100 million to shareholders by way of a capital return of $0.062 per share. At the same time, we are seeking approval to undertake an equal and proportionate share consolidation of 0.97 shares for every 1 share currently held. This means that every 100 shares currently on issue will convert to 97 shares. The capital return is due to be paid on the 22nd of October 2021, and our shares are due to start trading on a consolidated basis on the 19th of October 2021. As well as the capital return initiatives I've just talked about, we also announced in August of this year that the Board has decided to continue the on-market buyback program with a further tranche of up to approximately $40 million of shares to be bought back after the implementation of the capital return. The on-market buyback is not subject to shareholder approval. The capital management initiatives I've talked about today, including the $100 million capital return we are seeking approval for today, represent a total return of funds to shareholders of approximately $720 million after receiving $743.3 million (sic) [ $734.3 million ] in pretax proceeds of the Waypoint REIT divestment. And I'll now ask Scott to take us through his presentation.

Thank you, Robert. As our country continues to find its way through the COVID-19 pandemic, I'm very proud of the way our people have continued to adapt to the changing circumstances, to deliver a strong operational and financial performance and maintain secure fuel supply to the country. As Robert has said, we delivered a very strong first half result this year. There were fewer restrictions on movement during this time compared with the same period last year. And we saw good recovery in our refining, Retail and Commercial businesses. At the group level, we delivered a $124.6 million improvement compared to the first half of 2020, to report a group EBITDA on a replacement cost basis of $256.3 million. Our Retail business performed extremely well through the pandemic in 2020 and has maintained this momentum in the first half of 2021, with sales quickly recovering as stay-in-home and stay-at-home restrictions were relaxed. Our Commercial business has delivered strong earnings growth driven by continued economic activity and cost reduction initiatives that were undertaken during 2020. In our refining business, strong production, lower crude costs and receipt of the federal government temporary production grant have seen the business return to profitability in the first half. We continue to demonstrate cost and capital discipline, maintaining a strong balance sheet with a $44.7 million net cash position at the end of June 2021. This position, together with strong financial performance, supports the return of the proceeds from the Waypoint REIT divestment that we are here to seek approval for today. Although the pandemic and extended lockdowns in New South Wales and Victoria continue to impact parts of our business in the second half, we have learned a lot, since the onset of this pandemic, about how to manage these disruptions to our business. And experience has shown us that markets quickly recover as restrictions are eased. We are very much looking forward to ending this year with a greater degree of certainty to further our recovery and growth plans. I thank you for your continued support. And we'll hand back to Robert, who will take us through the formal business of the meeting.

Okay, thank you, Scott. I'll now proceed with the formal business of the meeting. I'll step through the 2 resolutions before the meeting today. We will then address your questions. During the meeting, we will display the proxy votes and the direct votes received in advance of the meeting, where I as Chairman of the meeting have been nominated as a shareholders' proxy. I intend to vote all undirected and available proxies in favor of each resolution. I remind you that the polls are now open for voting. You can submit your vote at any time. And you will have some time after the question-and-answer session of our meeting to complete your voting. The outcome of today's meeting, including the final vote numbers, will be released on the ASX after the conclusion of today's meeting. The company is proposing to return capital to shareholders through a cash payment of $0.062 per share as an equal reduction of capital. This will distribute an aggregate amount of approximately $100 million to shareholders. As required by section 256C(1) of the Corporations Act and the company's constitution, shareholder approval is being sought today to return capital as contemplated by resolution one. In connection with the capital return, the company is proposing to consolidate Viva Energy's share capital by converting every share into 0.97 shares. This will reduce the overall issued share capital from approximately 1,608 million shares to approximately 1,559 million shares. As required by section 254H of the Corporations Act and the company's constitution, shareholder approval is being sought today to consolidate share capital as contemplated in resolution two. The proposed share consolidation will only be undertaken if resolution one is passed. The notice of meeting distributed to shareholders contains the information that shareholders require to make a decision on these 2 resolutions. Turning now to questions. As the items of business are related, we will take questions on both items of business now. Julia, have we received any questions on our items of business today via the online facility?

Thank you, Chairman. Yes, we have. The first question is coming from [ Stephen Maine ]. And his question is, "Now that big brother has fully sold out of Waypoint, can Chair Robert Hill comment on whether he is confident that the now independent REIT has enough balance sheet strength to meet the cleanup costs at all of its sites across Australia once electric vehicle take-up reaches critical mass?" Thank you, Chairman.

So I can't speak on behalf of the independent REIT, but I can say from a Viva perspective we've always regarded the environmental health of our sites as critically important. And we have always adequately funded remediation when it is necessary. So [indiscernible] remains in relation to all sites that we control, but I don't know whether -- Jevan, whether -- as CFO -- it doesn't seem to me to be really appropriate to speak on behalf of another company, but is there anything you'd want to add to it?

Well, I think that's right, Robert, not for us to speak on behalf of Waypoint REIT and in the context of the leases that [ we have put in place ] with Waypoint REIT for service stations. We have an obligation to remediate those sites to a standard that's consistent with running a service station on an ongoing basis if we ever decide to hand them back. And as you say, that's something we take very seriously.

So the -- our Board receives reports on a regular basis on the remediation -- historical remediation program that we have. And my recollection is in fact, in the last couple of years, the number of sites requiring further remediation has been reducing, which suggests that, with time, the sites have been managed better. And the historical shortfalls have been properly remediated, but it's certainly the way we will continue to conduct the business. Have you got any other questions through the online portal, Julia?

Yes, we have Chairman. This one is also coming from [ Stephen Maine ]. And the question is, "Including this latest capital raising, how much will Vitol have taken out of Australia since 2016, factoring in the original Viva REIT IPO in 2016, the Viva Energy IPO in 2018 and now these capital returns from the Viva Energy divestment of Viva REIT? Could one of the Vitol directors comment on whether it intends to sell any of its residual stake in Viva Energy in the short to medium term?" Thank you, Chairman.

[ In regard to the ] first half of the question, again with respect, I think that's really irrelevant. The Viva partnership purchased the business in Australia from Shell; and then -- and invested a large sum of money, as I might say; and then took the company public; and I'm pleased to say, has continued to invest in the company in terms of, from memory, something like 35.5% of our shareholding. So that's been a good story from our point of view. And they obviously as shareholders get rewarded for that shareholding in the same way as any other shareholder. I've had no indication that the Vitol partnership are intending on selling their shares in the short term, but I don't know. I don't really think Vitol is obliged to answer that in any way, but if one of the Vitol directors would like to comment on it, they can. I can just say from -- as I said, from my perspective, they continue to be good shareholders. And I hope [ they're well rewarded ] as good shareholders. Do either -- Mike, you in Singapore, would -- do you want to comment at all?

Well, yes. Thank you, Robert. And since I've not been a director as long as Dat, I think he may want to chip in and complement anything I say, but thank you for the question, [ Stephen ]. Vitol has always been and will remain a committed shareholder and is a big part of buying into Viva Energy Australia's strategies and are very excited and look forward with great anticipation to the phase of coming out of the pandemic in Australia and the very exciting opportunities that Viva Energy Australia will present to Vitol as a shareholder and to all its shareholders. As for making forward-looking statements about intent, that's totally inappropriate. And I don't think any shareholder would expect that to be the sort of thing any large shareholder will be expected to do. Dat, would you like to build on what I've said?

No. I think that sums it up well, Mike.

Julia, got any other questions?

Yes, Chairman, we do. This is a question from John Whittington. "Mr. Chairman, it's John Whittington from ASA. I realize a lot of companies are now doing share consolidations following a return of capital. Is there any sound reason for it other than window dressing? To me, it's a lot of work for retail shareholders in terms of record keeping and stuff and many comparative metrics or to keep the share price about the same." Thank you.

Well, I can recall John asking the same question on the last occasion that we returned capital. And he's picked up the answer really in the last part of his question, that the purpose of the consolidation is to ensure that the shareholder value [ as per each ] shareholder remains much the same. It's not influenced by the fact that the capital has been returned. So I don't know again, Jevan, whether you've got anything you'd wish to add to that.

No. Again, Robert, I think you've summed it up well. We did talk to the question in a previous time we returned proceeds. And the share consolidation and capital return is consistent with the approach the company set out when we sought to return the proceeds of the divestment last year. And good to see us delivering on that commitment this year. Thank you.

And good to see John not giving up too. Another one, Julia?

Yes, Chairman, another one from [ Stephen Maine ]. "Given that we have a market capitalization of almost 4 billion, why are we wasting shareholder time and money calling a second general meeting to approve a relatively small $0.062 capital return? Can you cite any other listed company that has bureaucratically called 2 special meetings in 13 months to deal with the proceeds of one single divestment? Can't you have just cranked up the on-market buyback instead or pay a bigger dividend?" Thank you.

Well, our commitment to repay the proceeds of this divestment has been extended through the unfortunate circumstance of the COVID pandemic. It wasn't our intention that it'll be stretched out as long as it has been, but as the questioner will know, we paused the process of that return when the pandemic hit us quite hard in the early parts of last year. [ As a result and said ], we've taken the prudent step of -- deliberate step of pausing that repayment. And that would be reconsidered as the position of the company evolved as the pandemic, hopefully, waned. As it turned out, in the first half of this year, the -- which was the following year, our position financially was much stronger. And we made the decision that we could return to the previous commitment that we had made. So that are the facts of life. We then had the issue of how much we believe we could afford to continue to repay, which was approximately $140 million. And then we had to work, determine from a Board perspective what was the best way to do that in the interests of all shareholders. We decided to do it by this mix of a direct repayment, capital repayment, plus returning to the share market for a buyback of the last $40 million approximately. So I would respectfully say that it's -- really has come about by the circumstances that were out of our control, but I think the way we've approached it has been sensible in the circumstances. And I certainly wouldn't have liked to see us go down any other path. So I'll just give Jevan the opportunity if he wanted to add anything to that.

Thank you, Robert. And thank you, [ Stephen ], for the interest in these really important matters. When we thought about the 2 options that you've set out, we did consider them. And I would make the comment that increasing the size of the on-market buyback would take considerable time to complete given the liquidity in the stock, the quantum of the return and the ability to trade within specific windows. A further dividend would have also impacted returns to shareholders given the tax treatment relative to the capital return. And so we did determine that -- despite the administration required with holding the EGM, that this was the most efficient way of returning capital to shareholders.

Julia?

Thank you, Chairman. We have another question from [ Stephen Maine ]. "Given that Vitol is a foreign company that presumably has no use for franking credits, does it prefer capital returns ahead of dividends in terms of managing its tax liabilities? Would it have paid more tax if we had paid a bigger special dividend rather than calling a shareholder meeting to approve a capital return?" Thank you.

So again I don't think it's my place to speak on behalf of Vitol, but what I can say on behalf of Viva is that we consider all shareholders equally and make decisions based on what we believe is in the interest of the company as a whole. And in this instance, we've returned this money and are continuing to return this money to shareholders through a mix of direct capital repayment, of buybacks on the share market and of a special dividend. The tax consequences to -- of that -- of those decisions to any particular shareholder is the business of that shareholder. And apart from the general guidance that we gave in the notice of motion, I don't really think it would be appropriate for me to speculate further on the consequences to any individual shareholder, whether it's Vitol, another overseas company or an Australian investor. Got any others, Julia?

Yes, Chairman, another question from [ Stephen Maine ]. "Did we consider using the proceeds of this divestment to partially buy back and cancel Vitol's controlling 45% stake in the company? Could both the Chair and Vitol nominee directors comment on whether any discussions were held about extracting cash from Australia through a share sale into a selective buyback rather than a capital return?" Thank you, Chairman.

Yes. So again I think I've -- I sort of half answered this question in what I said in the last one. We -- did we consider using the proceeds to partially buy back Vitol's, to buy back shares from any particular shareholder? And the answer to that is no. We treat -- we're very pleased to have the investment, the ongoing investment, of Vitol in Viva. We think that that's an asset for the company. It adds to the strength of the company. And when it comes to the treating -- the treatment of individual shareholders, whether they're a big investor like Vitol or a smaller investor, we do our best to treat them equally. I don't think it's appropriate to ask the Vitol directors to comment further on that. Any other questions?

Thank you, Chairman. Another one from [ Stephen Maine ]: "Could a transcript of today's debate be added to your website, along with the archive of the webcast? And whilst doing this, can we have transcripts from the previous 3 shareholder meetings as well? Transcripts are becoming common, just like the Hansard at parliament. No political reporter was ever told to go back and rewatch [ the vision of ] parliament. They just read the transcript through Hansard." Thanks, Chairman.

Well, I don't -- I haven't considered that. I -- if -- I don't really see any reason that -- this is a public meeting. Any shareholder can participate in it. I think that we should take this -- unless you're enthusiastic to answer, Julia, a question, I think we should take it on notice and give consideration to it. We seek to be as transparent as possible. We think that's in our interest. It's good governance. We -- obviously it hasn't generally been the practice in the past, but we're told here that it's becoming more common, so I think we should look at it.

Thank you, Chairman...

Any others?

Yes, there are, another one from [ Stephen Maine ]. "I agree with John Whittington and the [ ASX ]. These share consolidations just make things more complicated. And we don't do a consolidation after a dividend, so why do it after a capital return? It's just more bureaucracy and paperwork." Thank you.

Well, we've answered the question. We answered the question on the last occasion. We have answered it today, but now that I see that John is building team support, we can think about it again if we ever do this again. Okay, any others?

Yes, Chairman, and another question from [ Stephen Maine ].

Yes.

"If there is a lack of liquidity to do a bigger on-market buyback, as the CFO just explained, did we make an offer to Vitol to buy back some of their shares as part of this capital management exercise? Coles, Myer, [ Aurizon ] and [ CBA ] have done selective buybacks to reduce major shareholder stakes over the years. And Woodside proposed one with Shell a few years back, although it was voted down." Thank you.

Well, the answer is no. We decided to return the proceeds of this asset after we sold our shares to shareholders and to do it in a way that was equal and fair to all shareholders. As far as we are able, we don't know the individual circumstances of any particular shareholder. We do treat -- we do seek to treat them all fairly and that's what we did in this instance. I think, Julia, you can read it, but it's not really a question. It's John Whittington entering into the debate by saying that, "We, the ASA, are happy you didn't have a selective buyback, as these are discriminatory."

That's correct, Chairman. That's a comment. And we have no other questions at this time.

Okay, well, I thank the questioners. So we have the option also of phone-in questions today, Julia, for the first time. And I think I am to ask the operator, as opposed to you, whether we've received any questions via the phone.

Chair, there are no questions on this item.

Okay, no questions have come via the phone mechanism. I'll proceed. A summary of the voting instructions received in advance of the meeting in relation to resolution one appear on the screen now. I formally put the motion that, for the purposes of part 2J.1 of the Corporations Act 2001, approval is given for the share capital of the company to be reduced by approximately $100 million; such reduction of capital to be effected by the company paying to each shareholder as at 7:00 p.m. Australian Eastern daylight time on the 15th of October 2021 the amount of $0.062 per ordinary share held at that time. So I'll now pause to let you record your vote. [Voting]

To proceed, a summary of the voting instructions received in advance of the meeting in relation to resolution two appears on the screen now. I formally put the motion that, subject to and conditional upon the passing of resolution one, return of capital to shareholders, and with effect from the 15th of October 2021, approval is given, for the purposes of part 2H.1 of the Corporations Act 2001, for the share capital of the company to be consolidated through the conversion of each ordinary share in the company held on the record date of 7 p.m. Australian Eastern daylight time on the 20th of October 2021 into 0.97 ordinary shares; and where the number of ordinary shares held by a shareholder, as a result of the consolidation effected by this resolution, includes a fraction of a share, that fraction be rounded up to the next whole number of shares. Again I'll pause to let you record your vote. [Voting]

That now covers all of the business before the general meeting today, but before finishing, I will check one more time to ensure that we didn't receive any further questions that I haven't answered. Julia, were there any further questions received on the online platform?

Yes, Chairman, another one from [ Stephen Maine ]. "Thanks to Julia for reading out all of the questions in full without editing or censoring. Is the Chair okay with this being my 10th question? And would he be okay ditching the phone option in future [ AGMs ], as written is much better?" Thank you, Chairman.

Well, I didn't think we had a choice. I thought, under the new guidance, we are supposed to offer the phone option. Is that correct or incorrect, Julia?

That's correct, Chairman. Under the new guidance for virtual meetings, we are to offer telephoned questions.

Yes. So hopefully, the next general meeting we have will be back to a face-to-face environment, which I think is much better. And we can get a bit more interaction, meaningful interaction. So that answers all the questions. Thank you. Voting will close shortly after the conclusion of the general meeting. And a countdown timer will appear at the top of your screen advising when the remaining -- advising the remaining time. If you have not already cast your vote, please do so now. Voting results will be released to the ASX and will be displayed on the company's website after the conclusion of this meeting. Thank you again for participating today in this virtual general meeting. I hope, wherever you are, you and your families stay safe. I declare the general meeting now closed.