2021 Half Year Results

27 July 2021

Vivo Energy plc

(LSE: VVO & JSE: VVO)

 2021 Half Year Results

Vivo Energy plc, the pan-African retailer and marketer of Shell and Engen-branded fuels and lubricants, today announces its consolidated financial results for the six months ended 30 June 2021.  

Christian Chammas, CEO of Vivo Energy plc, commented: "Our strong performance during H1 2021 further demonstrates the strength of our business and the resilience of the African continent. There is real momentum in the business and we delivered adjusted EBITDA of $220 million, 57% above H1 2020, and notably 4% above H1 2019. My thanks go out to all our teams for their efforts in staying safe whilst driving the business forward in the face of the continuing uncertainty created by COVID-19. We have shown once again that we can adapt to the changing operating environment whilst simultaneously supporting future earnings growth, opening 81 net new sites in the first half and continuing to broaden our customer offerings. As we move into the second half we are watchful of the potential impacts of COVID-19, but still expect Retail to lead the recovery and are demonstrating our confidence in our business by both investing in growth and delivering growing returns to shareholders."

KEY PERFORMANCE INDICATORS1

1Refer to the non-GAAP financial measures definitions and reconciliations to the most comparable IFRS measures on pages 11 and 12.

Financial Highlights

· Revenues increased by 18% to $3,989 million (H1 2020: $3,375 million)

· Gross cash profit was higher at $385 million (H1 2020: $300 million) as both volumes and unit margins rebounded from the initial impacts of COVID-19 lockdowns in H1 2020

· Volumes sold rose 8%, as mobility restrictions eased compared to H1 2020

· Gross cash unit margin of $77 per thousand litres (H1 2020: $65), remained strong

· Adjusted EBITDA was $220 million, 57% higher than H1 2020, with EBITDA of $219 million

· Net income increased to $76 million (H1 2020: $13 million)

· Adjusted diluted EPS and basic headline EPS were both 6 US cents

· Interim dividend per share of 1.7 US cents declared, in line with enhanced policy

· Net debt / adjusted EBITDA ratio decreased to 0.77x at 30 June 2021 (FY 2020: 0.86x)

Strategic and Operational Highlights

· Enhanced measures to keep our employees protected from COVID-19

· Actively supporting the vaccination of our staff where possible 

· Maintained safety focus, with Total Recordable Case Frequency (TRCF) of zero

· Expanded Retail footprint by a net total of 81 new retail service stations

· Expanded Non-fuel retail offerings by a net total of 11 QSRs and 44 convenience retail shops

H1 2021 Review

The Group delivered a strong start to the year, with gross cash profit of $385 million, well ahead of H1 2020 and 10% ahead of H1 2019. This was driven by volume growth of 8% compared to H1 2020 and continuing unit margin strength. The volume recovery was led by the Retail segment, with volumes 18% ahead of H1 2020, as mobility restrictions eased and we saw the impact of the accelerated site roll-out programme and a range of marketing initiatives. Commercial volumes were 4% behind H1 2020, but excluding the impact of the supply contract that ended in Q3 2020, were 4% ahead. Lubricant volumes were also very strong, up 14% on both H1 2020 and H1 2019. Unit margins of $77 per thousand litres benefitted from the positive supply and pricing environment, particularly in Q1 2021, and from the strong performance in the Retail and Lubricants segments creating a higher margin product mix.

The operational recovery drove a significant improvement in financial performance, with adjusted EBITDA of $220 million, 57% ahead of H1 2020 and 4% ahead of H1 2019. This led to earnings per share of 6 US cents, compared to 1 US cent in H1 2020 and in line with H1 2019. The Group also continued to deliver strong cash flows, even with increased investments into the Retail network, delivering adjusted free cash flow of $90 million during H1 2021.

COVID-19 Update

We continue to adapt to the uncertainties that COVID-19 has created across our operating countries with demand for fuel continuing to recover and remaining very resilient during the period. During the period, many of our markets experienced a further wave of infections, but unlike in Europe, the reported health impact remained limited and our markets generally kept their economies open. Over the last six months, our host governments have regularly evolved their mobility restrictions in response to changes in local case numbers, preferring to use curfews of varying durations, and temporary restrictions on regional movements in countries as their primary response. These measures naturally have an impact on mobility and therefore fuel demand but are significantly less disruptive than the full lockdowns experienced in Q2 2020. Borders have, however, largely remained closed which has both affected our Aviation business and meant that countries with large tourism industries have seen a slower recovery in retail fuel demand.

In June, a number of our markets began to experience a third wave of rising case numbers and in response, amongst other measures, some governments have once again extended curfews and closed schools. To date, these actions have had a limited impact on the Group volumes in aggregate, although in Uganda, which imposed a full lockdown until the end of July, volumes have been more materially affected. Our experiences over the past year mean that as a business, we are well prepared for the continuing evolution of restrictions. We have continued to take a proactive approach to managing our operations and working practices through COVID-19, with a hybrid working system in a number of offices and depots and where possible, are actively supporting vaccinations of our staff. We will provide support to the nascent vaccination programmes where we can as we move through H2 2021, and are ensuring we are prepared for the recovery as restrictions evolve.

Sustainability

The Group continues to place significant focus on sustainability matters and our climate change response. Whilst sustainability is already integrated into our operations, we took the decision to form an ESG and Climate Management Committee, chaired by the CEO, to guide our future approach and support the deeper integration of climate change considerations into the business. A key focus has been preparing for our first TCFD disclosures at the end of the year. The Group continues to implement initiatives to reduce its environmental impact, and in Ghana has signed a contract to retrofit 20 sites with solar power. These will both reduce operating costs and provide over 500 tonnes of CO2 savings per annum once installed.

Dividend

The Board has approved an interim dividend of 1.7 US cents per share amounting to approximately $21.5 million. This is in line with the Group's progressive dividend policy that was enhanced at the 2020 full year results. The interim dividend is expected to be paid on 10 September 2021. Due to the pandemic, the Group did not declare an interim dividend in respect of H1 2020, but declared a final dividend in respect of the full twelve months of 2020.

Outlook

The Group had a strong first half, and we enter H2 2021 from a position of strength. As expected, performance was led by the recovery in our Retail business as mobility restrictions eased across our markets, with margins also returning towards more normalised levels in Q2 2021. We are navigating the uncertainty created by COVID-19, and subject to any major change in mobility restrictions, our expectations for the full year remain unchanged. As we move into the second half, we expect margins to complete their normalisation, with volumes continuing their steady recovery, led by the positive momentum in the Retail segment. This has been supported by the excellent progress we have made on network expansion and we now believe we will comfortably be at the top end of our original guidance range of 90‑110 net new sites by the end of the year. We will continue to support our employees, customers and communities as we deliver against our key focus areas for the year in order to capture the long-term structural growth opportunities in our markets and create sustainable value for all of our stakeholders.

End

Results presentation

Vivo Energy plc will host an audio webcast for analysts and investors today, 27 July 2021 at 09.00 BST, which can be accessed at https://webcasting.brrmedia.co.uk/broadcast/60ddc2aa0bb2806642d68f86

Participants wishing to ask a question should dial in to the event by conference call:

Dial-in: +44 330 336 9127 (UK) / +27 11 844 6054 (SA)

Participant access code: 227087

The replay of the webcast will be available after the event at https://investors.vivoenergy.com

Notes to editors:

Vivo Energy operates and markets its products in countries across North, West, East and Southern Africa. The Group has a network of over 2,400 service stations in 23 countries operating under the Shell and Engen brands and exports lubricants to a number of other African countries. Its retail offering includes fuels, lubricants, card services, shops, restaurants and other non-fuel services. It provides fuels, lubricants and liquefied petroleum gas (LPG) and solar energy solutions to business customers across a range of sectors including marine, aviation, mining, construction, power, transport and manufacturing. The Company employs around 2,700 people and has access to over 1,000,000 cubic metres of fuel storage capacity and has a joint venture, Shell and Vivo Lubricants B.V., that sources, blends, packages and supplies Shell-branded lubricants.

Vivo Energy plc has a primary listing on the London Stock Exchange, and is a member of the FTSE 250 index, with a secondary inward listing on the Johannesburg Stock Exchange.

For more information about Vivo Energy please visit www.vivoenergy.com

Forward-looking-statements

This announcement includes forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties many of which are beyond the Company's control and all of which are based on the Directors' current beliefs and expectations about future events. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as: "believe", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "continues", "assumes", "positioned", "anticipates" or "targets" or the negative thereof, other variations thereon or comparable terminology, but are not the exclusive means of identifying such statements. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding the intentions, beliefs or current expectations of the Directors or the Group concerning, among other things, the future results of operations, financial condition, prospects, growth, strategies of the Group and the industry in which it operates. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed, or implied in such forward-looking statements.

Such forward-looking statements contained in this report are current only as of the date of this report. The Company and the Directors do not intend, and will not update any forward-looking statements set forth in the document. You should interpret all subsequent written or oral forward-looking statements attributable to the Group or to persons acting on the Group's behalf as being qualified by the cautionary statements in this report. As a result, you should not place undue reliance on such forward‑looking statements. This announcement may contain references to Vivo Energy's website. These references are for convenience only and Vivo Energy is not incorporating into this announcement any material posted on www.vivoenergy.com. 

Table of contents

Management's discussion and analysis 2

Overview of operations by segment 3

Retail 4

Commercial 5

Lubricants 6

Consolidated results of operations 7

Analysis of consolidated results of operations 7

Consolidated financial position 9

Liquidity and capital resources 10

Non-GAAP financial measures 11

Reconciliation of non-GAAP measures 12

Accounting and reporting developments 13

Risks and uncertainties 13

Interim condensed consolidated financial statements 15

Terms and abbreviations

This MD&A of financial condition and results of operations is intended to convey management's perspective of Vivo Energy plc's ('Vivo Energy' or the 'Company') operational performance and financial condition during the periods under review, as measured under IFRS and non-GAAP measures. This MD&A is intended to assist readers in understanding and interpreting the Company's interim condensed consolidated financial statements and should, therefore, be read in conjunction with the interim condensed consolidated financial statements (included from page 15 onwards). The results of operations and cash flows for the six-month period are not necessarily indicative of the results of operations and cash flows for the full fiscal year.

The financial information disclosed in this report is unaudited and does not constitute statutory financial statements. Comparative figures for the period 30 June 2020 were derived from the Interim Report H1 2020. Comparative figures for the year ended 31 December 2020 were derived from the 2020 Annual Report and Accounts that was delivered to the Registrar of Companies in England and Wales. These accounts received an unqualified audit report which did not contain a statement under section 498(2) or 498(3) of the UK Companies Act 2006.

All amounts in this report are expressed in millions of US dollars, unless otherwise indicated.

Further insight into the Company, as well as financial and operations reports, can be found on the investor relations section of the Company's website at: http://investors.vivoenergy.com/.

IFRS and non-GAAP measures

This MD&A contains both IFRS and non-GAAP measures. Non-GAAP measures are defined and reconciled to the most comparable IFRS measures on pages 11 and 12.

Non-GAAP measures are explained and reconciled on pages 11 and 12.

KEY PERFORMANCE INDICATORS

ANALYSIS OF RESULTS

KEY PERFORMANCE INDICATORS

ANALYSIS OF RESULTS

KEY PERFORMANCE INDICATORS

ANALYSIS OF RESULTS

SUMMARY INCOME STATEMENT

NON-GAAP MEASURES

Non-GAAP measures are explained and reconciled on pages 11 and 12.

ADJUSTED FREE CASH FLOW

Adjusted free cash flow of $90 million was mainly driven by the generated net income of $76 million, the adjustments for non-cash items of $106 million as well as the positive net change in operating assets and liabilities and other adjustments of $21 million, partially offset by current income tax paid of $59 million. The increase in the net change in operating assets and liabilities and other adjustments is primarily attributable to the normalisation of the operating environment compared to H1 2020, which was also impacted by the timing of certain payments from 2019. Net additions in PP&E and intangible assets were higher at $60 million, compared to $44 million in H1 2020 which was impacted by the strategic slow-down in non-essential capital expenditure. The Group's net additions in PP&E and intangible assets included $34 million in Growth (H1 2020: $22 million), $22 million in Maintenance (H1 2020: $19 million), and $5 million in Special Projects (H1 2020: $3 million), offset by $1 million proceeds from disposals[4].

_________________

NET DEBT AND AVAILABLE LIQUIDITY

Net debt increased by $27 million due to the decrease in cash and cash equivalents and higher bank borrowings and lease liabilities, partially offset by a decrease in long-term debt. The decrease in cash and cash equivalents was mainly due to the repayment of the RCF and payment of dividends. The leverage ratio at 30 June 2021 fell to 0.77x (FY 2020: 0.86x) as a result of higher LTM adjusted EBITDA, partially offset by higher net debt. The available undrawn credit facilities of $1,342 million (FY 2020: $1,563 million) comprise $300 million of the undrawn committed multi-currency RCF and $1,042 million of undrawn, unsecured and uncommitted short‑term bank facilities extended to our operating entities for working capital purposes. The short‑term bank facilities include a large number of uncommitted facilities (ranging from $1 million to $359 million). Total available short-term capital resources are $1,801 million (FY 2020: $2,078 million).

Non-GAAP measures are not defined by International Financial Reporting Standards (IFRS) and, therefore, may not be directly comparable with other companies' non‑GAAP measures, including those in our industry. Non‑GAAP measures should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

The exclusion of certain items from non‑GAAP performance measures does not imply that these items are necessarily non-recurring. From time to time, we may exclude additional items if we believe doing so would result in a more transparent and comparable disclosure.

The Directors believe that reporting non‑GAAP financial measures in addition to IFRS measures provides users with an enhanced understanding of results and related trends and increases the transparency and clarity of the core results of our operations. Non‑GAAP measures are used by the Directors and management for performance analysis, planning, reporting and key management performance measures.

For the reconciliation of adjusted free cash flow and net debt, refer to page 10.

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The following amendments and new interpretations to the standards effective for annual periods beginning on or after 1 January 2021 have been applied in preparing the interim condensed consolidated financial statements and have no material impact for the Group:

- Amendments to IFRS 16 COVID-19 related rent concessions (May 2020)

- Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9, IAS 39 and IFRS 7)

The impact of the decision made by the IFRS IC in April 2021 on the treatment of cloud computing costs is under assessment. There are no other standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2021 that have a material impact on the interim condensed consolidated financial statements of the Group.

Risk management is embedded in the operational responsibilities of our teams and is an integral part of our overall governance, planning and decision-making. The Group continues to be exposed to a number of risks and has an established and structured approach to identify, assess and manage those risks. Details of the principal risks facing the Group's businesses were included on pages 62 to 69 of the 2020 Annual Report and Accounts and are set out below, with all of these remaining applicable.

· Partner reputation and relationships

· Criminal activity, fraud, bribery and compliance risk

· Oil price fluctuations

· Currency exchange risk

· Health and safety

· Economic and governmental instability

· Product availability and supply

· Business concentration risk

· Information technology risk

· Acquisition integration

· Climate change

· Epidemic

· Credit management

· Human resources and talent management

The Board of Directors has assessed the continuous impacts of COVID-19 on these principal risk factors over the first six months of 2021 and the expected impact for the remaining six months of the year. In our last Annual Report and Accounts, as well as our market communications in 2020 and 2021, we detailed our response to COVID-19. We continuously adapt the management of our critical operational and finance activities, enabling the Group to manage risks as they arise or evolve. All mitigation plans remain applicable for the duration of the pandemic and are adapted to the evolving business environment and measures taken by authorities in the countries where we operate.

Africa is currently facing a third wave of COVID-19 and the World Health Organization (WHO) has warned that its spread is accelerating such that it could soon surpass the peak of the second wave of early 2021. The largest recorded increases in case numbers have been experienced primarily in the countries of southern and eastern Africa, including Zambia and Uganda, but also in Tunisia. Furthermore, vaccination programmes in the majority of our operating countries are in their early stages. Consequently, the pandemic continues to slow the recovery of these economies, which has an impact on government finances (increasing government debts) as well as local companies and individual financial security. These negative trends may impact our exposure to credit risks.

On a more positive note, the lower volatility observed in the oil markets, and currencies for some of the countries where we operate, is expected to continue throughout 2021, which reduces our related risk exposure, in particular on stock losses.

Climate change continues to attract increased attention, with new reporting requirements coming into force in 2021. The recently created ESG & Climate Management Committee, chaired by the CEO, has the responsibility to guide the Group's climate change response, ensuring the Group is able to meet regulatory requirements linked to climate‑related risks and opportunities disclosure required under the TCFD while beginning to embed climate change into decision making in the Group.

A specific focus has been placed on GHG (greenhouse gas) emissions (CO2 equivalent in kilotonnes) reporting this year. GHG emissions are being added to the standard scope of the internal audit mandates in our operating countries. This includes a systematic review of the carbon emissions-related data identification, collection, consolidation and reporting in each operating country with the objective to review the traceability of the data source to provide reasonable assurance on the reported data quality, integrity, completeness and consistency.

We have not observed any significant changes in our exposure to the other principal risk factors. As part of the Group's risk management framework we continue to consider changes in the nature, likelihood and impact of existing risks, as well as new and emerging risks.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of contents

Consolidated interim statement of comprehensive income

Consolidated interim statement of financial position

Consolidated interim statement of changes in equity

Consolidated interim statement of cash flows

Notes to the interim condensed consolidated financial statements

1...... General information

2...... Basis of preparation

3...... Financial instruments by category2

4...... Segment reporting

5...... Finance income and expense

6...... Income taxes

7...... Earnings per share

8...... Inventories

9...... Borrowings

10... Net change in operating assets and liabilities and other adjustments

11... Contingencies

12... Related parties

13... Events after balance sheet period

Responsibility statement

Independent review report to Vivo Energy plc

CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

1 Refer to the non-GAAP financial measures definitions and reconciliations to the most comparable IFRS measures on pages 11 and 12.

CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

The notes are an integral part of these interim condensed consolidated financial statements.

CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

The notes are an integral part of these interim condensed consolidated financial statements.

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[1] Included in reserves is a merger reserve ($82m) relating to the premium on shares issued as part of the consideration of the acquisition of Vivo Energy Overseas Holdings Limited, formerly known as Engen International Holdings (Mauritius) Limited in March 2019.

[2] Included in reserves is a cost of hedging reserve ($1m) reclassified from currency translation difference reserve. Reserves include $5m related to market purchases of ordinary shares of the Company to satisfy option exercises under the Company's IPO Share Award

Plan and Long-Term Incentive Plan (‘LTIP’).

[3] Equity settled incentive schemes include the LTIP and the IPO Share Award Plan (fully vested in 2021).

[4] The net impact on retained earnings as a result of the index-based adjustments in Zimbabwe under IAS 29 ‘Financial Reporting in Hyperinflationary Economies’.

[5] The dividends paid to the equity holders of Vivo Energy plc were paid out of distributable reserves.

CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

The notes are an integral part of these interim condensed consolidated financial statements.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General information

Vivo Energy plc ('Vivo Energy' or the 'Company'), a public limited company, was incorporated on 12 March 2018 in the United Kingdom. The Company is registered in England and Wales and is limited by shares (Registration number 11250655) under the Companies Act 2006. The Company is listed on the London Stock Exchange Main Market for listed securities and the Main Board of the securities exchange operated by the Johannesburg Stock Exchange by way of secondary inward listing. References to 'Vivo Energy' or the 'Group' mean the Company and its subsidiaries and subsidiary undertakings. These interim condensed consolidated financial statements as at and for the six-month period ended 30 June 2021 comprise of the Company, its subsidiaries and subsidiary undertakings, joint ventures and associates.

Vivo Energy distributes and sells fuel and lubricants to retail and commercial consumers in Africa and trades under brands owned by the Shell and Engen groups of companies and, for aviation fuels only, under the Vitol Aviation brand. Furthermore, Vivo Energy generates revenue from Non-fuel retail activities including convenience retail and quick service restaurants by leveraging on its retail network.

2. Basis of preparation

The Company's interim condensed consolidated financial statements have been prepared in accordance with the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules (DTR) sourcebook of the United Kingdom's Financial Conduct Authority. The interim condensed consolidated financial statements have been prepared under the historical cost convention unless otherwise indicated.

These interim condensed financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2020, which have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and the International Financial Reporting Standards (IFRS) pursuant to Regulation EC No. 1606/2002 as it applies in the European Union.

The Group has considered the impact of COVID-19 and the current economic environment in relation to the going concern basis of preparation for the interim condensed consolidated financial statements. The impact of COVID-19 as experienced in the prior year is not expected to be as severe in the current period. A detailed analysis assessing the Group's financial and operating performance indicates positive future trends and growth for the Group with increasing sales volumes, gross cash profit and positive cash inflows. The Group maintains sufficient liquidity headroom, through operating cash generation as well as committed and uncommitted credit facilities, to sustain future business operations. The Directors therefore continue to consider it appropriate to adopt the going concern basis of accounting in preparing interim condensed consolidated financial statements. At the time of approving the interim condensed consolidated financial statements, the Directors maintain a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future.

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may vary from these estimates. The estimates and underlying assumptions, as disclosed in the 2020 Annual Report and Accounts, are reviewed on an ongoing basis. During the period there were no changes to estimates which require significant judgement by management and no new significant judgements or estimates have been identified.

In preparing the interim condensed consolidated financial statements, the Group has considered the impact that climate change may have on key accounting judgements and estimates including asset useful economic lives and asset valuations and impairments. The Group continues to introduce initiatives designed to reduce the carbon emissions from its direct operations and develop alternative product offerings, the Group considers that the transition towards a low-carbon economy in its primary markets will be over a longer time period than will be seen in the UK and the European Union. As a result, the Group considers that the market for oil products across Africa will continue to grow within its medium‑term planning horizons and this assumption is embedded within the Group's five-year strategic business plan which in turn supports a number of key forward-looking accounting judgements and estimates.

The interim condensed consolidated financial statements follow the same accounting policies as those in the Vivo Energy plc 2020 Annual Report. There has been no impact as a result of preparing the interim condensed consolidated financial statements under the International Accounting Standards as adopted by the United Kingdom.

New standards, amendments and interpretations

The Group has applied a number of amendments to IFRS standards issued by the IASB that are mandatorily effective for annual periods beginning on or after 1 January 2021. The Group's financial statements have been prepared in accordance with these standards, which have no material impact on the consolidated interim financial statements of the Group:

- Amendments to IFRS 16 COVID-19 related rent concessions (May 2020)

- Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9, IAS 39 and IFRS 7)

The impact of the decision made by the IFRS IC in April 2021 on the treatment of cloud computing costs is under assessment. There are no other IFRS standards, amendments or IFRS IC interpretations that are not yet effective which would be expected to have a material impact on the Group. 

3. Financial instruments by category

The table below sets out the Group's classification of each class of financial assets and financial liabilities and their fair values for the current and the comparative period:

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The Group has classified equity investments as financial instruments at FVTOCI (without recycling). These investments are measured using inputs for the assets or liabilities that are in the absence of observable market data, based on net asset value of the related investments (level 3 in the IFRS 13 'Fair Value Measurement' hierarchy) which management considers to best represent the fair value of the associated investment given its nature. Since the value is based on the net asset value of the related investment, no sensitivity analysis is presented. There were no changes made during the period to valuation methods or the processes to determine classification and no transfers were made between the levels in the fair value hierarchy.

4. Segment reporting

The Group operates under three reportable segments: Retail, Commercial and Lubricants.

Retail segment - Retail fuel is aggregated with Non-fuel revenue. Both operating streams derive revenue from retail customers who visit our retail sites. Retail fuel and Non-fuel revenues are aggregated as the segments are managed as one unit and have similar customers. The economic indicators that have been addressed in determining that the aggregated segments have similar economic characteristics are that they have similar expected future financial performance and similar operating and competitive risks.

Commercial segment - Commercial fuel, LPG, Aviation and Marine are aggregated in the Commercial segment as the operating segments derive revenues from commercial customers. The segments have similar economic characteristics. The economic indicators that have been addressed are the long-term growth and average long-term gross margin percentage.

Lubricants segment - Retail, B2C, B2B and Export Lubricants are the remaining operating segments. Since these operating segments meet the majority of aggregation criteria, they are aggregated in the Lubricants segment.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The Directors monitor the operating results of the business units separately for the purpose of making decisions about resource allocation, segment performance assessment and interacting with segment managers.

The following tables present revenues and profit information regarding the Group's operating segments:

The amount of revenues from external customers by location of the customers is shown in the table below.

The amount of non-current assets held by country is shown in the table below.

Reconciliation of non-GAAP measures

Non-GAAP measures are not defined by International Financial Reporting Standards and, therefore, may not be directly comparable with other companies' non-GAAP measures, including those in the Group's industry. Non‑GAAP measures should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements. The exclusion of certain items (special items) from non-GAAP performance measures does not imply that these items are necessarily non-recurring. From time to time, we may exclude additional items if we believe doing so would result in a more transparent and comparable disclosure.

The Directors believe that reporting non-GAAP financial measures in addition to IFRS measures, as well as the exclusion of special items, provides users with enhanced understanding of results and related trends and increases the transparency and clarity of the core results of operations. Non-GAAP measures are used by the Directors and management for performance analysis, planning, reporting and are used in determining senior management remuneration. Further explanation of all non-GAAP measures can be found on page 11.

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The Group defines headline earnings per share as earnings based on net income attributable to owners of the Group, before items of a capital nature, net of income tax as required for companies listed on the Johannesburg Stock Exchange.

5. Finance income and expense

________

6. Income taxes

Income tax expense is recognised based on management's estimate of the annual effective income tax rate of 40% for the six-month period ended 30 June 2021 (69% for the six-month period ended 30 June 2020, which was based on the actual year to date tax expense). The effective tax rate used for the six-month period ended 30 June 2021 is in line with management's estimated annual income tax rate for the year, as no significant items impacting the effective annual income tax rate have been identified. The decrease of the ETR is primarily due to a lower relative impact of the permanent items and the withholding tax as a result of higher earnings before tax.

7. Earnings per share

Basic and diluted earnings per share were computed as follows:

8. Inventories

Cost of sales as disclosed on the face of the consolidated statement of comprehensive income include the total expense for inventory for the period amounting to $3,468m (H1 2020: $2,974m). The carrying value of inventory represents the lower of cost or net realisable value. Provisions for write-downs of inventories to the net realisable value amounted to $7m (2020: $8m).

9. Borrowings