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Good morning, everyone, and thank you for joining Vivo Energy's Q3 trading update call. With me today is Christian Chammas, our CEO; and Doug Lafferty, our CFO. You will have seen the short statement we put out this morning, and we have a short presentation to run through today covering the key points in the trading update before we open up for any questions. Please do be aware that you will have to be dialed into the conference line if you would like to ask a question. With that, I'll hand over to Christian to take you through the slides.
Thank you, Giles. And good morning to everyone. I won't talk through this slide, as you will have seen it before, but we move straight to Slide 2. Okay. Before we talk to the good numbers on the page, I want to start with the COVID-19 backdrop in Africa to give you some context to our operating environment. When we last talked to the market in July, the continent was seeing elevated case numbers driven by the Delta variant. At the time, we saw tightening restrictions with Uganda going down into lockdown and curfews extended in length across many markets. As we moved into August and case numbers fell, these measures started to be relaxed once again and in September, discontinued, with travel restrictions being lifted and the length of overnight curfews reduced by a number of hours, which has further helped mobility. As an indicator on this, there are no African countries on the U.K. red list, which is an example that the continent is beginning to open up again, both domestically and internationally. Moving back to the business. you can see we have delivered another strong quarter with gross cash profit ahead of both last year and quarter 3 2019. Volumes were 3% ahead of Q3 2020 as they continue to recover and excluding the supply contract were 6% above Q3 last year and broadly in line with Q3 2019. Retail volumes provided the biggest impact and were 6% higher than Q3 '20 supported by increasing mobility and excellence site rollout progress. Commercial volumes were still behind due to the supply contract, but benefited from improving aviation and marine dynamics as international travel began to resume across several markets. Whilst lubricants isn't a major swing factor for group volumes, it delivered another excellent performance with volumes 9% higher than last year. Margins have remained strong at $76 per cube as the pricing and supply environment over the past 12 months has continued to support us, together with further benefits from the mix effect and the impact of our lubricants price increases we put through in the first half continuing during the quarter. All in all, a very pleasing set of numbers. Looking in more detail at the retail business. You can see that the majority of our markets are over 5% higher than they were in quarter 3 2020. Several of our large markets such as Uganda, Tunisia and Kenya were impacted by COVID restrictions in July. And so the strong group performance even with these headwinds is still encouraging and demonstrates the benefit that our diversification brings. The easing of mobility restrictions in August and September supported the volume recovery, together with the excellent progress we have made on the network growth. It is worth highlighting that average throughputs remain fairly steady, but are still behind 2019 levels due to the restrictions during the period. In addition to core fuels, our premium fuels business continues to do well, with penetration increasing, leading to a growing contribution to both volumes and margins. Nonfuel retail has also made good progress, and we continue to look to new opportunities to accelerate growth in this segment. Moving on to our retail network expansion. This slide shows how we have grasped the opportunity to grow over the past 10 years. We have consistently grown our footprint. And with the addition of the underpenetrated engine markets in 2019, we now have a greater opportunity for growth. We have opened a net of 114 new sites this year, ahead of our previous full year plans. Over 50 of these sites were in the engine markets. And having taken the time to get the right teams in place, we are now accelerating our growth in these markets as well as in the Shell markets. The larger market opportunity is a key driver behind why we have increased our site rollout guidance for both this year and 2022. We are not changing our investment criteria and still expect to achieve more than 20% IRR for any new project. But our confidence in the opportunity and our team's ability to execute means that we can now allocate more capital to grow faster than we had done before. As I have already said, our margins remained strong during Q3, even with the oil price averaging in the 70s, but we will still expect H2 margin to be slightly lower than H1. As we have demonstrated, our cost-plus model limits our exposure to the oil price. But at these levels, it reduces our flexibility in the deregulated markets. We also have to maintain extra vigilance across the group as current oil prices put pressure on the cost of living and our customers. We have seen governments taking action to support consumers in certain markets. But this hasn't had a meaningful impact on our business so far. Currently, COVID restrictions remain a much bigger impact to volumes than demand elasticity to the oil price. To sum up, I'm very pleased with how the recovery is continuing and by the excellent work of our teams on the ground to drive the business forward. The segments most impacted by COVID-19 are beginning to improve, and our site rollout is moving forward rapidly. We're excited by the significant long-term potential in our markets, and we'll continue to invest to grow our fuel and nonfuel offerings to meet this demand. Whilst broadening our product mix to provide long-term benefits to our customers and our broader stakeholders. I will now stop here and hand back to Giles for the Q&A.
Thanks, Christian, for that, Operator, could we go to the lines for any questions, please.
[Operator Instructions] We will take our first question from Sam Bland from JPMorgan.
I've got 2, please. First 1 is it's good to see the higher number of site rollout target. Could you just talk a little bit about where the new sites are coming from, particularly, are they more weighted to the Engen countries maybe? And just anything around sort of mix of greenfield versus rebrands in that site growth? And the second question is the supply contract. Am I right in thinking that it will come out of comps in Q4? Can you just talk about how sort of unusual that contract was? Is there another big contract in the business somewhere that could leave as well? Or is that contract quite unusual?
Okay. Thank you, Sam. On the sites, your question is pertinent. The Engen countries where we have decided to accelerate growth because of our low market share represents a big chunk of that -- those 114 sites. It represents about 50 as at September. So a big part of it. They are grassroots, some of them, and some of them are also sites which we have taken over from local operators on a long-term lease agreement or an outright purchase. So it's a mixture of quite a few possibilities and formats. So -- and that's very exciting because they are operational, the following morning we signed a deal. So the volumes are immediately at hand. The remaining sites are across the Shell-branded portfolio of countries, and they are mainly grassroot that have been built across our different countries. And that is the model. And we continue doing that. We have quite a few sites in the pipeline for, of course, for quarter 4 and quarter 1 2022. And that is how we plan our business. And that is why we're feeling comfortable to indicate that we should have higher deliveries for '22 than what was initially planned. On the second element, which is a supply contract, it is a tender which comes every 3 years on a big island, and we won that tender a year ago now. We supplied it. Was it 2 years ago? We supplied it. And therefore, it comes off our comparison chart, as you said, from this quarter, quarter 4 2021. And then if it happens, again, it will happen again in 2 years' time. So you won't see it happening again. It's quite unique and it's the way it's formatted. I hope I've answered your question.
Thank you. We'll go to our next question now from Nikolas Stefanou from Renaissance Capital.
It's Nick from RenCap. Congratulations on a strong set of numbers. Christian, I've got 3 questions, all of them are on this kind of like your site guidance you put out there. Just to kind of like get an idea of your kind of like longer-term plus. My understanding is that this kind of like site layout is based on a 5-year plan. But you make mention of higher number of sites for '21 and '22. Should I kind of like look at that as kind of like a more opportunistic approach now just because you found these opportunities, but the kind of like 20, 30-plus target will be within the 80 to 100 site kind of like mark as before? That's the first question. The second one is on CapEx. Could you give a sphere like what's the incremental CapEx for these new sites? And then thirdly, if we kind of like circle back to the first question, which gives you this opportunity for new sites. I presume the majority of them will be kind of like geared toward DODO where your kind of like near-term margin will be a bit lower. So I mean, could we then see perhaps the total mix within your site mix to increase and potentially maybe your retail margin kind of like normalizing from the 70, 75 kind of like region to maybe a bit lower than that just because you've got more DODO sites than currently in the mix?
Okay. On the first question, which is about the sites projection, Yes, we do have a 5-year plan, but the 5-year plan gives us an indication of the opportunities, the macro opportunities in the different countries, where the roads are going, where the infrastructure is going, where the urbanization is going. So that gives you an idea of what you should look for when it comes to positioning of your future sites. So that's the first, that's the macro work. The second one is more short term, i.e., let's say, 2-year plan, where we organize ourselves in order to be in a position to roll out promises, i.e., what we had indicated earlier on 90 to 100, which we have now raised a bit to 130, 140 because we have a better visibility of what is happening this year, what is definitely happening next year. Why? Because we -- what is going to happen next year, we've already started working on it from the beginning of this year. We don't start working in January '22 for '22. We start working in January '21 for '22. So we already have a pretty good visibility. The only element that is a variable element is what I would call deals that are not grassroot, that are taking over sites from third parties who we knock at their door or they knock at our door, and that accelerates the rollout. And this is what happened in 2021 and probably will happen in '22. So that is why we increased our estimates for 2022 to 130, 140 because we have better visibility. I'm pretty sure sometime next year, we will then say, we confirm the figures for '23 or we increase them. We -- at this stage, it's early days. You want to talk about CapEx a bit, Doug?
Yes, sure. So on the CapEx, we're continuing to invest, obviously, in the future growth of the business. So you'd expect the CapEx to sort of follow the trend. So I think we've previously guided for this year to be similarly in line with the CapEx spend from last year. Given the accelerated site rollout plan, I think we can probably say that, that will be increased by between $10 million and $15 million by the time we get to the end of this year. One thing to add is that we're not adjusting our sort of return hurdle rates through this accelerated rollout plan. So we're still making sure that every project we do has that 20% return that Christian referenced and we continue to do the [ PIR ] exercise to make sure that we stay in that position.
Your third question -- element was around the DODOs and the COCOs and the CODOs. The company looks -- the return is the same. And I would say that in the case of the DODO is higher because the CapEx is lower. But of course, the gross margin is lower as well. But anyway, it's a weighted average. And we have no plan to change that equilibrium, which we have, which is quite acceptable and well balanced today. And we continue pushing that by having more CODOs down the line than DODOs because CODO is more consolidated, and we like to have that consolidation in our portfolio.
Okay. Okay. I was thinking that this -- yes, I was thinking just this kind of like additional kind of like sites in order for you to be able to bring them in so quickly, there must be mostly like geared towards DODO. So that's kind of like why I asked that question. Sorry, Doug, just to clarify what you said. So effectively, this, what is it, like 30 -- maybe 30 sites on top or have like an incremental $10 million to $15 million CapEx? Did I hear that correctly?
Yes.
15, yes.
Our next question today comes from Georgios Pilakoutas from Numis.
Wondering if you could provide a bit more color on how trends are going in some of your bigger markets, kind of Tunisia, Morocco, Kenya, where we're at in terms of restrictions, vaccinations. Second one, which is kind of an observation that commercial, once you ex out that contract, is kind of not doing too dissimilarly to the other divisions. And that's despite Aviation and Marine, which we know kind of still be materially below. So that implies that kind of the rest of commercial is actually being relatively strong and then kind of outperforming the other divisions. So I was just hoping if you could talk a little bit more around what's delivering that strength.
Okay. Maybe I'll talk a bit. Yes, the upside in the commercial business is that, as you rightly put it, the other business, other than Aviation and Marine, is doing well. Energy, of course, you have mining, you have construction, you have industry and transport. And all that is an army, of course, all that is doing very well compared to the previous period, and we're very pleased with that. So that is the upside. And that compensates more than largely the fact that aviation is not there.
Yes, yes. And then just on the larger markets. So I think, look, we're trading broadly in line with our expectations. So I think we referenced Morocco, Kenya, et cetera. We're pretty happy with how things are going, specifically around restrictions and vaccination rates. I think Morocco is still -- sort of leads across all of our markets. I think we've now got 50% of the population fully vaccinated, I think, in Morocco, and that rollout continues to go well. I was actually down there a couple of weeks ago. and the booster jabs are going out now as well to those over the age of 50. So I think the Moroccan vaccination program is going well, and restrictions have actually started to be eased a little bit there. The curfew has been reduced. So it's much tighter in terms of hours. Similarly, in Kenya, I think good news just yesterday, all the restrictions in Kenya have now been lifted. So that's a very positive indicator that hopefully, things sort of progressed to going more back to normal in Kenya. So yes, look, I think business is trading as we anticipated, and we're optimistic that hopefully those restrictions continue to ease. Of course, we have to be watchful, as we all are here in the U.K. as well, of what could happen with the pandemic going forward. But for now, we're in -- seem to be in pretty good shape.
Our next question comes from Victoria Petrova from Credit Suisse.
Congratulations on strong results. I have a sort of small remaining questions. On the oil price, I completely understand that you basically just put a margin on it, but it is also input cost for some of your operations. Is there a certain level where your customer could react on the oil price increases in terms of volumes? And is there a certain oil price where it starts to hit your margins as a cost input? That's my first question. And my second question. We're obviously in a high inflationary environment overall, especially we see it in developed markets. Are you seeing anything outside of commodity price inflation in terms of your cost structure, which could also contribute to lower margin in the second half of 2022 and -- and 2021 and beyond?
Thank you. On the first question on the oil price, we -- I think we have, through our different presentations, shown a graph that -- a slide that shows the barrel movement over years and what happens to the GDP across our portfolio of countries. And you will see that when there is this -- when you see these sudden surges in the barrel price, yes, there is a slight hit when it comes to consumption. But it is a very -- over a very short period of time, and there is an immediate correction within a couple of months. Now why is that? Is that -- you see there is a real strong demand for fuels in the sense that it is still and remains still the only alternative and the only solution for transport and mobility across the continent. And therefore, yes, you will have a slight reaction for a couple of weeks, but then business is back to normal. And we've seen it. Three years ago or four years ago, we had that scenario, and we saw it happening. And then we saw the immediate correction a couple of months ago. So I'm not saying it's not going to go without any collateral temporary issues, but people adapt and they have to, they have no alternative. And we also are very prudent in the way we manage all that in order to make sure that to avoid shocks, and we accompany the governments in every possible way in order to dampen these shocks. I know that a lot of governments are looking at reducing duties and taxes in order to absorb that. There's a country that announced it a couple of days ago. So that's one way of absorbing these shocks. So -- but we don't intend to do it ourselves. It's not our role, right? We are not tax policy people. The second point is the high inflation. Do you want to comment on that?
Yes. I mean, so I guess the short answer is no. We're not really seeing any other pressures across the cost base. I think part of that is the these markets tend to run a little bit hotter inflation anyway. So obviously, we're seeing inflationary pressures in the U.K., Europe and the U.S., but we deal with sort of higher inflation year-by-year in the markets in which we operate. That said, we have to be vigilant. And to what Christian just mentioned on the oil price, we have a watching brief. We're making sure that we're on top of it, and we'll continue to monitor it. But for the time being, there's nothing which is coming through.
As we have no further questions, I'd like to turn the conference back to your speakers today for any additional or closing remarks.
Thanks very much, everyone, for joining and for the questions. And yes, we're available to answer any future questions. If you have those, just please do get in touch. And if not, have a good day. Thank you very much.
Thank you.
Thank you.