Viva Energy : FY2019 Results Presentation Opens in a new Window

This presentation has been prepared by Viva Energy Group Limited, ACN 626 661 032 (“Company” or “Viva Energy“). The Company was incorporated on 7 June 2018, and in July 2018 was part of an initial public offering pursuant to which its securities were listed on the ASX (the “IPO”). As part of that process the Company acquired Viva Energy Holding Pty Ltd (“VEH“), the former holding company of the Viva Energy group.

In this presentation, where results and reporting relates to the period prior to the incorporation of the Company or its acquisition of VEH, they refer to the Viva Energy group as operated with VEH as the holding company, which are the relevant financials for the purposes of consolidation in 2018, for comparison.

The information provided in this presentation should be considered together with the financial statements, ASX announcements and other information available on the Viva Energy website www.vivaenergy.com.au. The information is in summary form and does not purport to be complete. This presentation is for information purposes only, is of a general nature, does not constitute financial advice, nor is it intended to constitute legal, tax or accounting advice or opinion. It does not constitute in any jurisdiction, whether in Australia or elsewhere, an invitation to apply for or purchase securities of Viva Energy

or any other financial product. The distribution of this presentation outside Australia may be restricted by law. Any recipient of this presentation outside Australia must seek advice on and observe any such restrictions.

This presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors must rely on their own examination of Viva Energy, including the merits and risks involved. Each person should consult a professional investment adviser before making any decision regarding a financial product.

In preparing this presentation the authors have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which has otherwise been reviewed in preparation of the presentation. All reasonable care has been taken in preparing the information and assumptions contained in this presentation, however no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. The information contained in this presentation is current as at the date of this presentation (save where a different date is indicated, in which case the information is current to that date) and is subject to change without notice. Past performance is not a reliable indicator of future performance.

To the extent that certain statements in this presentation may constitute ‘forward-looking statements’ or statements about ‘future matters’, the information reflects Viva Energy’s intent, belief or expectations at the date of this presentation. Such prospective financial information contained within this presentation may be unreliable given the circumstances and the underlying assumptions to this information may materially change in the future.

Neither Viva Energy nor any of their associates, related entities or directors, give any warranty as to the accuracy, reliability or completeness of the information contained in this presentation. Except to the extent liability under any applicable laws cannot be excluded and subject to any continuing obligations under the ASX listing rules, Viva Energy and its associates, related entities, directors, employees and consultants do not accept and expressly disclaim any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising from the use of, or reliance on, anything contained in or omitted from this presentation.

Any forward-looking statements, including projections, guidance on future revenues, earnings and estimates, are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Viva Energy’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Any forward-looking statements, opinions and estimates in this presentation are based on assumptions and contingencies which are subject

to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions.

You should rely on your own independent assessment of any information, statements or representations contained in this presentation and any reliance on information in this presentation will be entirely at your own risk. This presentation may not be reproduced or published, in whole or in part, for any purpose without the prior written permission of Viva Energy.

Viva Energy is a Shell Licensee and uses Shell trademarks under license. The views expressed in this release or statement, are made by Viva Energy and are not made on behalf of, nor do they necessarily reflect the views of, any company of the Shell Group of companies.

Health and Safety

• 20% reduction in recordable injury rate
• Third consecutive year free of significant process safety incidents3
• Brisbane terminal Major Hazard Facility licence renewed for 5 years
• More than 900 workers trained in AERO safety program at Geelong
• 95% of employees feel their team is committed to operating safely

Total recordable injury frequency rate1

Environmental

• Lowest level of primary containment incidents in five years
• 65% of refining fresh water consumption from recycled sources
• Green and golden bell frog habitat established at Sydney terminal
• Hazardous waste recycling and reuse at the Geelong refinery

Loss of primary containment (>1,000kg)

Goal Zero

We believe every incident is preventable and we are committed to pursuing the goal of no harm to people and protecting the environment

Community

• Fuel supply and donations ($500K) to those impacted by the summer bushfires
• Inaugural Reconciliation Action Plan launched
• More than 1000 young people supported by Viva Energy community programs2
• Premier Partner of the inaugural
  Geelong Football Club’s AFLW team

People

1. The total recordable injury frequency rate (TRIFR), or total recordable injury rate, is the number of injuries requiring medical treatment per million hours worked
2. Programs include NASCA’s Resilience Program, Cathy Freeman Foundation Horizon Program and
   Headspace Training and mentorship

4

Operational performance

14.7BL

Fuel sales volume

up 4.6% pcp

42.0mbbl

Refining intake

up 4.7% pcp

65MLpw

Ave. weekly Alliance volumes for 2H2019

up 9% from 1H2019

Financial

performance1

$644.5m

Group Underlying EBITDA (RC)

at top end of guidance1

$135.8m

Underlying NPAT (RC)

within guidance1

$153.0m

Distributable NPAT (RC)2

Balance

sheet

$137.4m

Net debt

down from $168.7m3

$2,448.3m

Lease liability

US$700m

Total facility limit

Capital

management

4.7c

FY2019 dividend per share,

fully franked

$734.3m

Divestment of Viva Energy

REIT (VVR)

$161.7m

FY2019 capex

down from $241.3m in FY2018

Total fuel volumes sold by product (ML)

• Sales volumes increased 4.6% to 14,695ML in FY2019
• Strong growth in volume in Aviation, Liberty and Wholesale sectors
• Stabilised gasoline sales in FY2019 following restoration of the retail Alliance

Underlying Group EBITDA (RC) ($m)

• Underlying Group EBITDA (RC) for FY2019 decreased by 17% to $644.5m
• Continued weak refining margins, lower retail and commercial margins, and unrecovered cost pressures

Retail

market

margins

Regional

refining margins

Cost

pressures

• Subdued retail / economic activity
• Significant change in competitive dynamics
• Periods of higher oil prices
• Weaker regional demand growth
• Disruptors to oil markets (sanctions, geo-political)
• Transition to IMO2020 and the increasing crude premiums of light-sweet crudes
• Lower Australian dollar
• Increased and unrecovered ocean freight
• Higher energy costs

Market-driven factors

• Retail margins impacted by periods of rising oil prices and intensified competition in 3Q2019. Margins showed recovery in 4Q2019.
• Ocean freight costs were elevated during 2019
• Refining margins impacted by lower regional demand growth and increased crude premiums as market transitioned to IMO2020
• Weaker refining margins offset by a lower Australian dollar

Our responses

• Renegotiated the Alliance agreement to restore sales growth and customer loyalty
• Optimised Geelong Refinery production slate and crude selection to maximise diesel production and limit gasoline production
• Renegotiated and extended a significant number of Commercial contracts and secured new customers

FY2020 focus

• Continued restoration of Alliance sales volumes and brand perception
• Optimise sales volume and margin mix
• Optimise crude selection and production to maximise refining margin
• Complete efficient major maintenance turnaround2 at Geelong Refinery
• Capital management

1. Refer slides 12, 14, 15, 17 for further explanation on movements on FY2018 Underlying EBITDA

2. Refer slide 21 for further information on the turn-around of the Residual Catalytic Cracking Unit (RCCU) and associated processing units

Stronger retail platform

Re-negotiationof Alliance Agreement Took control of fuel pricing & marketing from 1 March 2019

Alliance volumes increased

restored weekly average volumes to ~65MLpw in 4Q19 (up 6.2% pcp)

Acquired Liberty Wholesale business Building presence in attractive regional wholesale markets

Renewed Shell Brand License Agreement

One of the most recognisable brands

in the world

Record levels of production

Highest ever diesel production

39% of output (up 3% pcp)

Reduced production of

low margin gasoline

37% of output (down 1% pcp)

Highest ever white barrel production

105kbd, previous record of

102kbd in FY2017

Transition to low

sulphur fuel oil (LSFO)

One of only few producers that can provide LSFO to market

Capital management focus

Low levels of Net Debt

$137.4 million

Disciplined capital spend

reduced by 33% to $161.7M

Divestment of Viva Energy REIT (VVR)

Sold 35.5% shareholding for $734.3 million

Dividend payout of 60%

Retail Underlying EBITDA (RC) ($m)

FY2018 vs FY2019 Underlying EBITDA (RC) ($m)

609

564

FY2019 results presentation

FY2019 overview on results

• FY2019 Underlying EBITDA (RC) of $564.3m was above the guidance range of $548-$558m provided in December 2019
• 2H2019 Alliance fuel sales posted first half-on-half increase in four years, achieving weekly average volumes of ~65 million litres per week
• Changes to the Alliance agreement delivered $37m benefit
  ($103m income less $66m price and marketing) however this was offset by market margin compression of $(86m)
• Weaker market margins due to periods of rising oil prices and heightened market competition impacted earnings, but strengthened in 4Q19
• Completed the acquisition of Liberty Oil’s wholesale business and established a new retail joint venture, Liberty Oil Convenience
• Undertook several successful joint marketing initiatives, such as Little Shop 2, and promotions with carsales.com and Transurban

12

FY2018 vs FY2019 Underlying EBITDA (RC) ($m)

• FY2019 Underlying EBITDA (RC) of $296.5m was slightly below the top end of guidance of $292 – $297m provided in December 2019
• Sales performance in Aviation, Transport and Resource segments was strong
• Majority of contracts were successfully renewed or extended, but with some margin erosion due to heightened competition
• Rising ocean freight costs and a weaker Australian dollar impacted Commercial earnings
• Secured contract with the Australian Defence Force to manage, maintain and supply fuel to HMAS Cairns Defence Fuel Installation

Refining Underlying EBITDA (RC) ($m)

326

FY2018 vs FY2019 Underlying EBITDA (RC) ($m)

FY2019 overview on results

• FY2019 Underlying EBITDA (RC) of $117.0m was slightly below guidance of $120-$130m provided in December 2019, impacted by lower regional refining margins than forecast for the month of December 2019
• FY2019 Geelong Refining Margin US$6.6/BBL is slightly down on FY2018 result of US$7.4/BBL
• Regional refining margins impacted by lower oil demand growth and higher crude premia for light sweet crudes
• Exceptional operational performance with plant availability of 92%, record crude intake of 42.0MBBL, and white barrel production at 105kbd
• The Geelong Refinery was able to optimise crude selections and its production slate to limit gasoline and increase diesel production
• A new 25ML gasoline tank was commissioned that allowed the refinery to efficiently aggregate gasoline parcels for coastal export and reduce associated demurrage

5 year: gasoline, diesel & fuel oil cracks1 (US$/bbl)

20.0

12.2

10.0

7.6

5.0

0.0

(5.0)

(7.4)

(10.0)

(15.0)

(20.0)

(25.0)

Jan-15Jan-16Jan-17Jan-18Jan-19

Gasoline Diesel HSFO

1. Cracks are calculated by Viva Energy by taking the finished product prices and deducting the quoted crude price (100% dated Brent). Original data source: Bloomberg

Regional refining margins

Gasoline market

• Demand for gasoline was relatively subdued driven in part by slowing Chinese consumption
• In 1H2019 exports from China and new refining capacity coming on line, contributed to below average gasoline cracks
• Gasoline cracks improved in 2H2019, boosted indirectly by tensions in the Middle East, regional turnarounds and progress on US-Chinese trade talks

Crude premiums

• Through 2H2019, competition for regional sweet crudes increased as refineries shifted to a sweeter diet in preparation for IMO2020 implementation

Freight

• Significant volatility in the freight market in 2H2019, with dirty freight especially impacted by sanctions and demand for vessels for stockpiling of compliant fuel ahead of IMO2020

Supply, Corporate & Overheads Underlying EBITDA (RC) ($m)

FY2018 vs FY2019 Underlying EBITDA (RC) ($m)

FY2019 overview on results

• FY2019 Underlying EBITDA (RC) of $(333.3m) was within the guidance range of $(335m) – $(330m) provided in December 2019
• Supply chain impacted by higher coastal shipping and property management costs
• Higher salary and corporate costs relate to natural and contracted wage inflation combined with full year impacts of being a publicly listed company
• FY2019 one-off items relate to the purchase of the remaining 50% share of Liberty Oil Wholesale and the extension of the Alliance agreement

Capital expenditure profile ($m)

Clyde terminal conversion project

Impact of major refining turnarounds/investments

Retail, Fuels & Marketing

Refining (exclusive of turn- around)

Supply, Corporate & Overheads

Sub-total

Turn-around activities

Coles Express Alliance payment

Total capex

1. Refers to the RCCU turnaround and associated activities. The turnaround of the RCCU is scheduled for completion during 3Q2020. The turnaround is expected to negatively impact refining intake by approximately 1.0 to 1.5 MBBLs and is expected to negatively impact the GRM. The actual impact to GRM will depend on the regional refining margin environment prevailing at the time

1. (54)

Non-cash items

Non-cash items of ($54M) includes:

• Profit from associates (-$60m)
• Unrealised loss on derivatives and unrealised gain on FX of (+$2m)
• Loss on disposed of PPE (+$2m)
• Non-cashshare options taken up in reserves (+$2m)

Alliance payment and Liberty Oil acquisition

• Coles Express Alliance payment of $137m
• Acquisition of Liberty Oil Holdings (net of cash) of $25m ($42m cash purchase price less $17m cash acquired)

FY2019 results presentation

Repayment of lease liability

• Repayment of lease liability due to the adoption of AASB16 Leases standard, which resulted in lease payments now being classified as finance costs and reduction in finance lease liability

19

Strong balance sheet

• Pro-formabalance sheet post Off-market Buy- Back remains strong, with Net Debt position still providing maximum financial flexibility
• Debt capacity remains robust, with current facility limits of US$700 million

Changes in net debt

• Coles Express payment of $137 million and Liberty acquisition cost of $42 million were the primary driver of the increase in net debt

Change in Net Debt (A$m)

Reconciliation of Underlying NPAT (RC) Distributable NPAT (RC)

Significant one off items during the period

• Impact of a revision to the Group’s Asset Retirement Obligation provision due to changes made to underlying estimates ($3.0m
  – net of tax)
• Gain recognised on revaluation of the Liberty Oil Holdings (LOH) investment as part of the accounting for the acquisition of the remaining 50% share of LOH group ($1.0m – net of tax)

Dividend

• Dividend determined for the six months ended 31 December 2019 of 2.6 cents per share, fully franked, taking total dividend for the year to 4.7 cps
• Represents payout ratio of 60% of Distributable NPAT (RC) for the year
• Reaffirm 50-70% ongoing target payout range of Distributable NPAT (RC)
• Expected dividend Payment Date will be 15 April 2020, payable to registered shareholders on the Record Date of 25 March 2020

Divestment

of Viva

Energy

REIT

Engagement

with Viva

Energy REIT

and

Management

Agreement

Capital

Management

Programme

• Viva Energy sold its 35.5% security holding in Viva Energy REIT (VVR) for total of $734.3 million, and an estimated $112.9 million pre-tax profit on the sale
• Viva Energy intends to return capital to shareholders through a buy-back of shares in the Company, subject to all necessary approvals and confirmations being obtained
• VVR has performed well since listing and the Company is releasing equity in the vehicle at an attractive price
• Viva Energy will have a number of on-going arrangements with VVR. Viva Energy will continue to perform its role as Manager and to support VVR under the existing Management Agreement, which remains unchanged – with such services being provided on a cost-recovery basis
• Going forward, Viva Energy will work constructively with the independent directors of VVR with respect to future management arrangements
• Viva Energy’s nominee directors on the Board of VVR (Lachlan Pfeiffer and Jevan Bouzo) will remain on the Board in the near term
• Divestment of Viva Energy REIT interest enables Viva Energy to return all $680 million in after-tax proceeds to its shareholders
• Subject to obtaining the necessary regulatory and shareholder approvals, the preferred alternative is to return the net proceeds to shareholders by way of an off-market share buyback with any proceeds not returned via that process returned to shareholders via an on-market buyback
• The off-market program would be intended to complete by 2Q2020

Optimise crude selection and production to maximise refining margin

Complete efficient major maintenance turnaround1 at Geelong Refinery

Capital management

1. The Company intends to resolve to proceed with, and set a record date for, this proposed capital management initiative following receipt of all regulatory confirmations, waivers and approvals that are required to undertake an off-marketbuy-back via a tender process. The Company has lodged all necessary applications to obtain these confirmations, waivers and approvals, but there is no guarantee that they will be obtained. If they are obtained, the

Company will also seek shareholder approval to permit it to buy-back more than 10% of its own shares under the proposed capital management initiative. If shareholder approval is not obtained, then the percentage of the Company’s shares that will be bought back under any such initiative will not exceed 10%.

AASB leases: pro-forma financials

AASB 117 and AASB 16 Variance of FY2019 Underlying NPAT

21.4

(196.4)

257.4

443.7

(154.6)

268.721.7

186.3 186.3

AASB leases: impacts

Balance sheet

Right of use assets

$2,328.1 million

Lease liabilities (interest bearing liabilities)

$2,448.3 million

Income statement

Operating costs

$257.4 million

EBITDA

$257.4 million

Lease straight-lining

$21.4 million

Depreciation

$196.4 million

Interest

$154.6 million

NPAT (RC)

$50.5 million

Cash flow statement

Operating cash outflow

$260.8 million

Investing cash flow

$154.6

Financing cash outflow

$106.2 million

No material impact on net cash

flows

Refinery – illustrative sensitivity analysis

• For the purposes of tracking the financial performance of the Geelong Refinery, a sensitivity table is provided here to illustrate the impact on FY2019 Underlying EBITDA (RC) and Underlying NPAT (RC) of each US$1.0 move in GRM along with movements in foreign exchange. The table utilises the FY2019 Refining Underlying EBITDA (RC) of $117.0 million, an average GRM of US$6.6 per barrel and intake of 42.0 million barrels as a reference point for illustrative purposes only1
• Viva Energy will continue to update the market on the Geelong refining performance through the quarterly release of GRM and refinery intake information

Refinery sensitivity analysis

of the Australian downstream petroleum market1

service station sites nationwide in Viva Energy’s network

fuel import terminals and depots2 nationally to support operations

airports and airfields across Australia supplied by Viva Energy

capacity of oil refinery in Geelong, Australia

years proudly operating in Australia

sole right to use the Shell brand in Australia for sale of retail fuels.3 Agreement has been extended to 2029

refreshed retail Alliance with Coles

strategic relationship with Vitol

1. Market share data is based on total Australian market fuel volumes of 60.7 billion litres, as per Australia Petroleum Statistics in FY2019, and in respect of Viva Energy, is based on total fuel volumes of 14.7 billion litres in the period 1 January 2019 to 31 December 2019
2. Includes 23 fuel import terminals and 22 active depots (including 17 Liberty Oil depots), Viva Energy owns the Liberty Wholesale business and holds a 50% interest in the Liberty Retail business and supplies it with fuel
3. Viva Energy has been granted that right by an affiliate of Royal Dutch Shell and Viva Energy has in turn granted a sub-licence to Coles Express and to certain other operators of Retail Sites

Glossary

Underlying EBITDA

Profit before interest, tax, depreciation and amortisation adjusted to remove the impact of one-offnon-cash items including:

• Net inventory gain/loss
• Leases; share of net profit of associates;
• gains or losses on the disposal of property, plant and equipment; and
• gains or losses on derivatives and foreign exchange (both realised and unrealised)

Underlying NPAT (RC)

Net Profit After Tax adjusted to remove the impact of significant one- off items net of tax.

Distributable NPAT (RC)

Represents Underlying NPAT (RC) adjusted to remove the impact of for short term outcomes that are expected to normalize over the medium term, most notably non-cash one off items.

Earnings Per Share

Underlying NPAT (RC) divided by total shares on issue

Replacement Cost (“RC”)

Viva Energy reports its ‘Underlying’ performance on a “replacement cost” (RC) basis. RC is a non-IFRS measure under which the cost of goods sold is calculated on the basis of theoretical new purchases of inventory instead of historical cost of inventory. This removes the effect of timing differences and the impact of movements in the oil price.

Historical Cost (“HC”)

Calculated in accordance with

IFRS

Cost of goods sold at the actual prices paid by the business using a first in, first out accounting methodology

Includes gains and losses resulting from timing differences between purchases and sales and the oil and product prices

Net inventory gain/(loss)

Represents the difference between the historical cost basis and the replacement cost basis

Geelong Refining Margin

The Geelong Refining Margin is a non-IFRS measure calculated in the following way: IPP less the COGS, and is expressed in US dollars per barrel (US$/BBL), where:

• IPP: a notional internal sales price which is referrable to an import parity price for the relevant refined products, being the relevant Singapore pricing market and relevant quality or market premiums or discounts plus freight and other costs that would be incurred to import the product into Australia
• COGS: the actual purchase price of crude oil and other feedstock used to produce finished product