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

Good afternoon, and welcome to Viva Energy's 2024 Annual General Meeting. I'm Robert Hill, and I'm honored to serve as the Chairman of Viva Energy. It's now just after 2:00 p.m. Australian Central Standard Time. We have a quorum present, and I declare this Annual General Meeting of Viva Energy Group Limited open. We're holding our Annual General Meeting today as a hybrid meeting, which means we have people joining us here in person at the Intercontinental in Adelaide as well as online, welcome all of you. I'd like to acknowledge the traditional custodians of country throughout Australia and their connection to land, sea and community. Here in Adelaide, we're on the traditional lands of the Kaurna Nation of peoples. We pay our respect to their Elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples present today. Before we begin the formal business, I will hand over to our company Secretary, Julia Kagan, to run through some procedural matters.

Thank you, Chairman, and welcome to everyone joining us today. There are no safety drills planned for today. So if you do hear emergency alarm, please observe the staff and fire wardens will provide further instructions. Voting on all 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 both in person and online. You can do so at any time during the meeting starting from now, as the polls are now open for voting. If you're attending the meeting in person, you will have received an attendance card when you registered. Those who hold a yellow voting card can cast your vote by filling out your card. Those holding a red or a blue card are not entitled to vote at this meeting. If you do have any questions, please see a Link Market Services team member at the registration desk. For those shareholders joining us online, you can cast your vote by following the instructions set out on the screen in front of you. The voting will close shortly after the end of the meeting today. Just a few words on how to ask questions at this meeting, those attending the meeting in person and who hold a yellow or a blue card, you are entitled to speak and ask questions at this meeting. Visitors who hold a red card are not entitled to ask questions at this meeting. . If anyone with a yellow or blue card wishes to speak, please make your way to the microphone. When the Chairman calls for questions and identify yourself before asking the question. [Operator Instructions] You do not need to wait until we get to the formal items of business to submit your questions. I'll just remind you that there may be a slight delay in transmission. So we do encourage you to start submitting your questions now, and we will address these a little later today. [Operator Instructions] When we get to questions, the Chairman will consider questions from the floor first, then questions submitted online and then questions by phone. I will now hand back to the Chairman.

Thank you, Julia. Today, I'm joined on stage by my fellow directors to my left, Sarah Ryan, an Independent Non-Executive Director and Chair of our Audit and Risk Committee; Arnoud De Meyer, Independent Non-Executive Director and Chair of the Strategy and Investment Committee; and Mike Muller, Non-Executive Director. To my right, Scott Wyatt, Chief Executive Officer and Managing Director; Nicola Wakefield Evans, an Independent Non-Executive Director and Chair of our Sustainability Committee; Dat Duong, a Non-Executive Director, couldn't be with us in person today, and he joined us by telephone. Carolyn Pedic, our Chief Financial Officer; Lachlan Pfeiffer, our Chief Strategy Officer; Jevan Bouzo, our CEO, Convenience and Mobility; and Julia Kagan, who heard from, our Company Secretary, with us on stage today. We will also have joining us -- we also have joining us here in person today, Trevor Johnston representing our auditor PricewaterhouseCoopers, sitting in the front row. Trevor will be available to answer questions on the auditor's report later in the meeting. Before we go through the formal business, Scott and I will address the meeting on our performance and some of the highlights over the last year. It is significant that we're holding our Annual General Meeting here in Adelaide today. It's a first, but earlier this year, we completed the acquisition of the On the Run group. The Shahin family built On the Run to become a highly successful business and the largest nongovernment employer in South Australia. We are excited to have the opportunity to take this industry-leading convenience offer to our national network. It will help us grow and future-proof the convenience and mobility sector of our business. I wanted to specifically refer to our Energy & Infrastructure business, which remains critically important to the overall success of Viva Energy. The Geelong Refinery supplies more than half of Victoria's fuel requirements, regularly supplies Tasmania, and with the acquisition of On the Run, we'll also supply South Australia. It's an illustration of the contribution we make in supporting energy security in Australia, an aspect of our business, which in turbulent times is especially important. Conflict in Europe and the Middle East continues to disrupt energy markets and underscores the importance of maintaining local manufacturing capability and a sensible balance of self-sufficiency. On the subject of energy security, it's been heartening to see the Commonwealth Government recognize the important role of natural gas in sustaining manufacturing businesses like ours and supporting baseload electricity supply, as we transition to renewables. We remain concerned about the outlook for gas supply in Victoria and the impact that this will have on prices and outright supply to consumers and businesses. We believe that our LNG import terminal project within our Geelong Energy Hub can contribute a flexible and pragmatic option towards solving the structural gas shortfall. We plan to be in a position to make a final investment decision in 2025 with an anticipated delivery date before winter 2028, should the Victorian government approve the project this year, and we secure a sufficient commercial offtake arrangement. Beyond traditional hydrocarbon refinery, we continue to explore opportunities to reduce the carbon content of fuels we produce and offer our customers. Construction of our hydrogen production and refueling facility in Geelong is underway, and we'll see green hydrogen as a longer-term viable option for the heavy transport industry. We also believe that low carbon liquid fuels such as sustainable aviation fuel and renewable diesel will be important for the hard-to-abate sectors such as aviation, mining and road transport. We welcome the initiatives announced by the government at last week's federal budget to unlock local production of low-carbon liquid fuels. Exploring incentives to support production and demand, the development of a much-needed certification scheme and funding as part of the future made in Australia Innovation Fund recognizes the important role that low carbon fuels play in our energy transition. With policy settings from the government, which bring Australia into line with standards overseas, these fuels can be made at Geelong and distributed through our existing infrastructure. They will greatly enhance the long-term value of our assets, while at the same time, helping our customers reduce their carbon emissions. In our Commercial and Industrial business, we are seeing year-on-year growth. Commercial and industrial fuel sales grew by 12.6% in 2023. And we have secured a number of important strategic accounts, which will deliver further growth in the years ahead. I'm particularly proud that the Australian Defense Force has entrusted us to supply all of its fuel needs. It says a lot about the quality of our people, our capability and our reputation. Viva Energy is well positioned as the federal government invest more in defense capacity and fuel resilience in the years ahead. On the company performance as a whole, the group delivered another strong EBITDA of $713 million during the year 2023, with strong year-on-year growth across our non-refining business. This represents our second-best earnings result as a listed company following the record year in 2022, and illustrates the importance of the strategic agenda we are pursuing. Underlying cash generation was strong, and the Board determined to pay dividends of $0.156 per share. We aim to continue growing our business, diversifying our income, making an important contribution to energy security and supporting the broader energy transition in the years ahead. On behalf of the Board, I'd like to thank Scott and his leadership team, the extended executive team and all our team members who have worked incredibly hard during a transformative year for the company. And again, thank our shareholders for their continued support. I'll now ask Scott to take us through his presentation.

Thank you, Robert, and welcome all -- to all our shareholders and guests with us today. Last year was indeed a busy year for the company. The extended major maintenance activity at Geelong Refinery and the transition of Coles Express business, including taking full control of operations across our retail network required considerable effort across the company. And with that backdrop, I'm really pleased with our safety performance, which remains steady and indeed some good improvements in our process safety performance. Looking forward, I'm conscious of the new risks that we have taken on with the growth in our convenience and mobility business, and particularly the impacts on our team members from robberies and crime that unfortunately do occur from time to time. We have inherited some good processes from Coles and OTR, and will continue to look for ways to improve our safety across our retail network as we upgrade stores and enhance our offer. Across the rest of the traditional business, we continue to invest in improving asset integrity and inspections to reduce the risk of leaks and spills and generally driving a strong safety culture, which remains a source of pride amongst the broader Viva Energy team. As Robert highlighted, 2023 was very much a transformational year for Viva Energy. We delivered a strong financial performance and made significant progress on the strategic agenda, which we shared at the Investor Day in November. Group sales increased 9% to more than 15 billion liters and are now 5% above pre-pandemic levels. Commercial and Industrial sales grew by 12.6%, as aviation demand continued to recover and other commercial segments saw strong demand in what has been a broadly robust domestic environment. In contrast, convenience and mobility sales were relatively weaker with total fuel demand growing by less than 1% due to cost of living pressures and convenient sales impacted by the growth in illicit tobacco. Group earnings were $713 million, which outside of the refining business represented a 16% increase on 2022. In particular, Commercial and Industrial supported the group, as it delivered its third consecutive year of earnings growth, up 33% on 2022. The business continued to benefit from its high-touch customer focus, extensive infrastructure positions and diversification across different industries and specialty products. Our refining operations were impacted by extended major maintenance. But outside of these operational challenges, the general refining environment was constructive with refining margins above long-term averages. Our balance sheet was strong ahead of financing the OTR Group acquisition, ending the period with net debt of $380 million. As we set out in November last year, we are embarking on a multiyear strategy to transform from a fuel retailer that happens to sell convenience, to a convenience retailer that happens to sell energy. We expect this to deliver strong earnings growth over the next 5 years, expectedly doubling the contribution from our traditional retail business. It's an important driver of growth, but also an important response to the energy transition. During the year, we completed the acquisition of Coles Express and more recently completed on the acquisition of OTR. Together, these retail platforms provide a pathway to substantially improving our convenience offering, and directly accessing strong growth in this attractive and fast-growing segment, which is estimated at over $200 billion. The transition has gone smoothly, and we are now focused on early upgrades to Coles Express stores capturing supply chain benefits and reducing overhead costs by bringing together the business under one single operating platform. We expect to be able to provide more detail on our plans at our half year results and once again at the full year once we have direct experience operating stores under the new platform. In conjunction with upgrading the convenience software, we'll also begin installing electric vehicle recharging facilities at our stores in New South Wales. We received funding for 30 fast recharging facilities from the New South Wales government and expect to deploy the first round of charges during the second half of the year. We see electric vehicle recharging as an important convenience category over the long term, which will help drive visits to our stores and in-store sales uplift as customers spend more time with us. As Robert mentioned, supporting our Commercial and Industrial business, work has commenced on the construction of our hydrogen production and refueling facility at Geelong. This initiative is aimed at heavy vehicle users and together with renewable fuels, which Robert touched on, will play an important role in reducing emissions in Commercial and Industrial segments. A number of our customers have already purchased hydrogen vehicles in anticipation of this development, and we look forward to reporting on early progress again at our AGM next year. This project is part of our broader Geelong Energy Hub ambitions which include LNG import and storage facility, strategic storage, lower carbon and renewable fuels production. Work is also underway to upgrade processing capability to reduce sulfur and aromatic content of petrol, which we expect to be commissioned in the third quarter of 2025. It is worth noting that Geelong Refinery is the only manufacturer of bitumen for Australian roads, Avgas for smaller piston engine aircraft, low aromatic petrol to combat petrol sniffing in regional communities, polypropylene plastics and material (sic) [ military ] grade fuels to support Australian defense and its allies. This is a unique competitive advantage with strong integration with our Commercial and Industrial businesses. Overall, I'm pleased with the progress we have made on our strategic agenda over the last year. We have exciting plans for each of our 3 unique businesses and look forward to delivering on these in the year ahead. Looking forward to the rest of this year, let me begin by making a few comments about our first quarter 2024 operating results, which we released to the market last month. The group delivered a strong performance with Geelong Refinery operating at near capacity and sales up almost 8% compared to the same time last year. The Commercial business maintained momentum delivering another strong sales result on the back of healthy demand across most sectors and new business wins. Our retail operations performed well despite adverse weather in some markets, general cost of living pressures affecting fuel demand and lower tobacco sales with continued growth across the other convenience categories. We do see cost of living pressures impacting mobility and general consumer demand, and we recognize that the relatively high cost of fuel contributes to those pressures. Oil prices have recently begun to soften, providing some relief, but we will continue to focus on delivering value to customers through our range of retail offers, which now includes Coles Express, OTR, Liberty Convenience and our network of independent retail partners. Over the long term, we expect our Convenience and Commercial businesses to provide relatively stable and strong earnings, supported by the contribution from the OTR Group acquisition, which was completed in the first quarter. We also expect continued demand strength from our Commercial and Industrial businesses, which remains a very diverse business with demonstrated resilience to sectorial cycles. While regional refining margins have softened recently, they do remain above historical averages, and we are well positioned to maximize production opportunities with no planned major turnarounds this year. In conclusion, we are very excited about the remainder of 2024 and beyond. We have a strong and diverse portfolio, which is well positioned to capture growth opportunities. We are highly focused on executing our strategic objectives which we believe provide considerable growth opportunities over the long term. As I hand back to Robert, I would especially like to thank our people, our customers and partners and, of course, our shareholders for your continued support. Thank you.

Thank you, Scott. As we go through the resolutions today, I will open for questions. Those shareholders with us in Adelaide holding a yellow or blue card, you may make your way to the microphone at the appropriate time. And please identify yourself before asking your question. For our shareholders attending online, I'd encourage you to start submitting your questions now, and we'll address them as we go. I'll now proceed with the formal business of the meeting. The notice of meeting sets out the following matters for consideration by shareholders today. One, to consider the financial statements and reports; two, to adopt the remuneration report; three, to elect Sarah Ryan and myself, as directors of the company for to grant performance rights to Scott Wyatt under the company's long-term incentive plan; and five, to approve the grant of financial assistance by each OTR entity in connection with the acquisition by Viva Energy Retail. During the meeting, we will display the proxy votes and direct votes received in advance of the meeting. Where I, as the Chairman, the meeting have been nominated as a shareholder's proxy, I intend to vote all undirected and available proxies in favor of each resolution. There are also voting restrictions for some resolutions, as outlined in the notice of meeting. I remind you that the polls are now open for voting. The outcome of today's meeting, including the final vote numbers, will be released on the ASX at the conclusion of today's meeting. I turn to the first item of business, consideration of the financial statements and reports. The Corporations Act requires the directors to lay before the Annual General Meeting, the financial report, the directors' report and the auditor's report for the last financial year. There's no formal resolution put to shareholders for this item, but there will be an opportunity to ask questions on the matters contained in the reports. So I now ask, are there any questions from the floor on the financial statements and reports. If there are, please make your way to the microphone. If not, I'll ask our company Secretary, Julia Kagan, to read out any online questions we've received on this item of business.

There are no online questions, Chairman.

Then I ask the phone operator. Do we have any shareholders, who want to ask a question by phone?

There are no phone questions at this time.

Thank you. As there are no further -- no questions, must be a good set of accounts, Scott, I declare the financial statements and reports have been received and considered at the meeting. Item 2 is the remuneration report, which is included within our annual report. The vote on this item is advisory only. However, the Board will consider and take into account the outcome of the vote and feedback from shareholders on the remuneration report. Are there any questions on the remuneration report?

Good afternoon, Chairman. My name is [ Bob Ritchie ]. I have been appointed by the Shareholders' Association to represent the proxy donors, 21 of them about the same number as shareholders seated on the floor of the room by the look of today. We're voting 0.25 million or a bit over that use. We will be voting in favor of adoption of the remuneration report and in favor of all other resolutions today. But I'd like to make 2 comments. One is that, if all performance goes well, then the remuneration for the Chief Executive associated with the plan from this meeting, and what I believe will be adopted, it provides at the maximum an income that's about 50x the Australian average and about 70x the median Australian income. I'm not complaining about that, but I want to draw attention to the fact that I can see a shift globally against this wide gap in incomes and it may be something the Board should take into account as the years progress. I'm not even talking about this year or next year or the year in which the LTI comes in, but I think it is on the cards. And there's a social responsibility for the care of the company to make sure you're not out of churn. That leads me to the other point that the Shareholders Association hold dear, and that is the 4- or 5-year LTI hurdle or the time for it. You're working on 3 years. You have a plan -- you have intentions to double the retail side of the business across the next 5 years. It would be appropriate as that works its way into a plan for you to think about extending that 3 years to 4. In that regard, I will seek an opportunity to speak with the Chair of Rem after this meeting is over, just to speak briefly.

Well, thank you for coming, and thank you for your question and your support and that of your association. So I share your concern about income disparity and wealth disparity in our society. And as you know, over the years, the gap has actually been widening. So it is, as you described, a social issue. And the -- something that society as a whole should be conscious of and thinking about how best to respond to it. The government obviously think about it in terms of public policy that will lift the income of the lower sections of our community and also how the higher sections should be effectively taxed. The theory of that is to try and minimize income disparity. From the point of view of a corporation such as ours, what should we do, obviously, we now have, what, some 14,000 staff and we look to see that they are properly remunerated. But in relation to the top level of our company and you mentioned our Chief Executive Officer, we live in a competitive world, and we have to pay our senior executives at a level that is appropriately reflects and respects their contribution and is competitive with their peers. So I sometimes get asked these questions. And if Scott -- I say, Scott has been very loyal to this company, but goes back a long way. And therefore, in some ways, I'm a Chairman that doesn't have the worries of some others, but that would not be a justification to not treat him fairly. I have to respect his position where he is in that level of Australian corporate leadership, and we seek to remunerate him accordingly. We certainly don't seek to overpay him, I say quietly. We don't seek to underpay him either. On the other issue, which is LTI, we're actually with you or some of your colleagues in the state have had these discussions over the years. We do share your sentiment that for a long-term incentive 3 years doesn't seem very long. And when we started -- we're a young company, we started with the 3-year structure. And this year, for the first time, we've actually provided a 5-year mechanism for one of our senior executives, Jevan Bouzo in relation to our retail and convenience business. Why have we done that? Because we've actually -- Jevan's come in to run that business, can be a huge business, bringing in the Coles Express business, the On the Run business and soon to be the Liberty Convenience business. And we've set a 5-year target for him in terms of financial return to the company. So why not have a long-term incentive, that's linked into that 5 years, which is exactly what we have done. So what I say to you is that I hear what you say, and we've actually started on the road that you have outlined for us. So I hope that you think that that's a step in the right direction. Have we got any other questions from within the room?

Mr. Chairman, [ Kevin Long ], a shareholder. Can I digress and just ask a question about the accounts. So I sort of tossed over a little bit too quickly, and I...

You can certainly ask a question about the accounts. The issue is whether -- would you mind if a bit later in the meeting when I call for overall questions, we do it then. So we just stick to the rem at the moment. Always make time for all questions. I'm very pleased so many shareholders have turned out in Adelaide. Let you into a secret, there are more turned out in Adelaide than turned out in Melbourne. No other questions from the floor on the remuneration report. Julia, online?

Nothing Chairman.

Operator, on the phone?

There are no phone questions at this time.

So the question is the remuneration report for the year ended 31st of December 2023 be adopted. Please record your vote, if you've not already done so for shareholders attending this meeting in person, please now vote for, against or abstain. Next to resolution 2 on the yellow paper voting card for shareholders attending the meeting online, please select for, against or abstain next to resolution 2 on the online voting card. The next 2 -- I thank you. I'm told to pause. I paused. [Voting]

The next 2 items relate to the reelection of directors. As I'm standing for reelection at this meeting, I will hand the chair of the meeting to Arnoud De Meyer for this item of business. Thank you. Arnoud?

Good afternoon to all of you, and we look now first at Item 3A. This item relates to the reelection of Sarah Ryan as a Director, Sarah retires at this meeting in accordance with the company's constitution and being eligible, offers herself up for reelection. The Board has considered Sarah's performance and contribution and supports Sarah's reelection. Details of Sarah's qualification, career and experience are set out in the notice of this meeting and in the annual report. Sarah is with us here in Adelaide today, and I will ask Sarah to speak to you in support of her reelection. Sarah?

Thank you. So I was delighted when I was invited to join the Board of Viva Energy back in 2018, as we prepared to go public, and I'm very happy to be here with you today. So I'm a member of the Board's Sustainability Committee, and I Chair of our Audit and Risk Board Committee. My background is mostly from the energy industry with over 30 years' experience worldwide, mostly around oilfield operations, engineering and developing and commercializing research and innovation in energy-related technology. I also have substantial experience as a COO and in executive management, particularly key aspects such as strategy, people management, risk management and delivery of business priorities. I've also spent 10 years in investment management and private equity mostly based in the United States, starting as an analyst and an investment director and portfolio manager, who are mostly focused on global energy and natural resources. Many of the issues I've had to deal with over that time are very relevant to Viva's business today. For example, high-risk operations, the emphasis on safety and ensuring that the company cannot only survive but thrive in our changing world, as the world decarbonizes its energy and transport systems. I'm currently a Nonexecutive Director on the Board of 3 other ASX-listed companies, being Transurban, Aurizon and Calix. I'm a former Director of Woodside Energy and OZ Minerals in Australia and Aker Solutions based out of Norway. For most of these companies, I am or was a member of their Audit Risk and Sustainability Board Committees. On the energy technology side, I'm currently on the Board of the Future Battery Industries Cooperative Research Center, where I Chair the Audit and Risk Committee. And I'm on the Advisory Board of the Australian Research Council Center of Excellence in Green Electrochemical Transformation of CO2. I'm also a fellow of the Australian Academy of Technology and Engineering, where I Chair the energy form. I believe my background and experience leave me well placed to contribute to the company's future, and I'll be delighted to be reelected as a director by shareholders today. Thank you.

Thank you, Sarah. Let's now turn to the questions. Are there any questions on the floor on this item of the business?

Acting Chairman, this is my second and last time on the microphone. And I rise to speak in support of the resolution. I do not have a question. But as we're meeting in Adelaide and Sarah Ryan was a closing member -- was a member of the Board of OZ Minerals as it closed, my colleagues and I, who were dealing with that company, held that Board in a very high regard. And from our perspective, anyone who is invited to join that Board gets an extra boost in terms of the credentials. Thank you.

Thank you very much. Congratulations, Sarah. Any other questions from the floor? I don't see any. Julia, have we received any online questions on this item of business today?

No, we haven't.

Thank you, Julia. I will now go to the phone questions. Operator, do we have any shareholders, who wish to ask a question by phone?

There are no phone questions at this time.

Thank you. A summary of the direct and proxy votes received in advance of the meeting in relation to this item appears on the screen now. And I formally put the motion that Sarah Ryan be reelected as a Director of the company. Please record your vote now if you haven't already done so. [Voting]

Thank you. So we can now go to Item 3B. Robert retires at this meeting in accordance with the company's constitution and being eligible, offers himself for reelection. The Board has considered Robert's performance and contribution and supports Robert's reelection. Details of Robert's qualifications, career and experience are set out in the notice of the meeting and in the annual report. And I will ask Robert to say a few words about his reelection. Robert, over to you.

Thank you, Arnoud. Viva is a young company. This year, we marked the tenth anniversary since Vitol purchased downstream assets of Shell and set up a new business. I joined the Viva Board as the only Australian Independent Director, recognizing the importance of Shell's infrastructure and capabilities to Australia's security economy and broader public life. But I also recognize that with an energy transition starting to gather pace, the challenges in the future would be many. Four years later, we became an Australian publicly listed company, and I was proud to be its first chair. Public listing brought new investors, and I thank our investors for the confidence they've shown to the Board and Executive. Luckily for me, I've led a committed and cohesive Board and our executive group has been first class. We've sought to build a culture of pride and respect within the company, which has been reciprocated by a great team of employees. As a result, the company is strong with growing resilience. We are meeting our responsibilities in relation to the nation's energy security. We're building new low-carbon products and services to support an energy transition, which we believe in and our customers expect, and we've been able to deliver good financial returns to our investors. It's hard to recognize the Viva of today from that of 10 years ago. At that time, we were a wholesaler of fuel to our service stations. Now we're well on the way to owning and operating Australia's largest, and we would argue best retail convenience and fuel business. In the Commercial and Industrial sector, we didn't have an aviation business or a cruise ship business of any consequence. And we certainly didn't offer carbon solutions to our customers. Now our commercial and industrial business is strong and diverse and showing, as I said earlier, year-on-year growth. And the Geelong oil refinery is now underpinned by government support and is the centerpiece of a growing energy hub. The 330 million-liter diesel tanks as part of Australia's national security -- fuel security program will become operational within -- in months. The new ultra-low sulfur gasoline unit and other plant upgrades for low aromatics gasoline are being constructed, which will bring the refinery up to world's best practice in terms of fuel quality. The first publicly accessible hydrogen service station to supply heavy transport is planned to be filling vehicles this year and open to the public next year. We will be offering the capacity to process hard to recycle waste plastics through our residue catalytic cracking unit and polypropylene plant. Most importantly, we now manufacture F-44 fast jet fuel for the Royal Australian Air Force. So to this background, I again offer myself for election as a director. In doing so and whilst recognizing that stability and continuity of our small board has been important, I know that change must come with time. I see it as part of my responsibility to ensure that refreshment of leadership of the Board occurs over the next few years and in a way which adds value to the company. Thank you.