Release Date: August 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Viva Energy Group Ltd (ASX:VEA, Financial) delivered a strong first-half performance, with sales and EBITDA growing by 6% and 25%, respectively.
- The company completed the acquisition of OTR Group and is making good progress on integrating it with other retail businesses, expecting to deliver $60 million-plus synergies over the next three years.
- The commercial and industrial business delivered another record result, with sales growing 9% year-on-year and EBITDA increasing by 3% to $238 million.
- The Geelong Refinery operated at near capacity during the first half of 2024, with a crude intake of 20.6 million barrels and an availability of 97%, generating an average margin of USD10.80 per barrel.
- The Board has determined to pay an interim dividend of $0.067 per share for the year, representing a 70% payout ratio of convenience and commercial businesses, reflecting their reliable earnings profiles and strong cash conversion.
Negative Points
- Cost of living pressures are weighing on consumer demand, with both fuel and convenience sales in the company-operated network declining by around 5% over the same period last year.
- Declining tobacco sales impacted the convenience business, with a 17% drop across the network.
- Higher finance costs primarily reflected higher borrowings in the period, with net debt increasing to $1.5 billion after taking up $1 billion of term debt to acquire OTR Group.
- The refining business faced challenges with an unplanned outage affecting feedstock supply to the polypropylene plant, impacting the gross refining margin.
- The bitumen business underperformed due to significantly lower road maintenance activity across the industry, contributing to higher freight costs.
Q & A Highlights
Highlights of Viva Energy Group Ltd (ASX:VEA) Earnings Call
Q: Can you elaborate on the $200,000 per store uplift target and the potential benefits from QSR and fuel across the network?
A: Jevan Bouzo, CEO of Convenience and Mobility, explained that the $200,000 uplift is based on early data from 17 OTR sites outside South Australia. The figure excludes potential improvements in fuel sales and QSR benefits. The uplift could be higher for larger sites and those with more mature trading.
Q: How does the $200,000 per store uplift align with the $500 million convenience retail EBITDA target?
A: Bouzo stated that the $500 million target remains achievable. The uplift from converting stores to the OTR format could exceed initial estimates, but the rollout is slower than anticipated. The overall business has enough opportunities to meet the target.
Q: What are the key risks and opportunities during the test and learn phase of the OTR rollout?
A: Bouzo highlighted that the initial package of sites includes a mix of high and low-performing locations to understand the best approaches for scaling. The focus is on refining the model to maximize customer impact and minimize costs.
Q: Can you provide more details on the $60 million synergy target over three years?
A: Bouzo mentioned that the synergy target includes opportunities not initially forecasted, such as trading terms and procurement efficiencies. The full value is expected to be realized by late 2025 or 2026.
Q: What is the outlook for the commercial business, given the headwinds in bitumen and freight costs?
A: CEO Scott Wyatt noted that these headwinds are expected to normalize. The commercial business continues to perform well, with strong demand across most segments and new business wins, particularly in defense.
Q: How are you addressing the delays in planning approvals for the OTR rollout?
A: Bouzo explained that the delays are primarily in conversions rather than new store rollouts. The team is ramping up efforts to manage consents and council approvals more efficiently.
Q: What are the strategic benefits of the new diesel storage at Geelong?
A: Wyatt stated that the storage improves shipping economics and ensures compliance with minimum stockholding obligations. It supports the refinery by reducing shipping costs and enhancing import capabilities.
Q: Can you provide an update on the LNG import facility at Geelong?
A: Wyatt mentioned that the environmental approval process is progressing, with a potential FID by the end of next year and gas into Victoria by mid-2028.
Q: How are you planning to roll out the OTR app across the Express network?
A: Bouzo indicated that the app could be activated as sites transition from Coles systems to Viva's systems. The integration with existing loyalty programs and branding will be key considerations.
Q: What is the impact of the branded supply headwinds on future performance?
A: Bouzo noted that the headwinds are not a major concern. The business is actively managing competition and expects to work through these challenges over the next 6 to 12 months.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
