Final Results

Vivo Energy plc

(LSE: VVO & JSE: VVO)

 2018 Full Year Results

London, United Kingdom, 6 March 2019: Vivo Energy plc, the retailer and marketer of Shell and Engen branded fuels and lubricants in Africa, today announces its consolidated financial results for the year ended 31 December 2018.

Christian Chammas, CEO of Vivo Energy plc, commented: "This has been a remarkable year for Vivo Energy and we are pleased to have met our objectives for the period and delivered a strong first set of results as a public company. In 2018, we achieved volume growth of 4% at a gross cash unit margin of $73 per thousand litres, which drove adjusted EBITDA of $400 million. The completion of the transaction with Engen is transformational for our business, adding operations in eight new countries under a strong, well-respected brand. During 2018 we have proved the resilience of the Group's footprint in the face of challenges in some markets. Looking forward we continue to see significant growth opportunities across our portfolio as we continue to enhance our position in our fast-growing markets across Africa."

KEY PERFORMANCE INDICATORS

1 Figures presented for the six-month period ended 31 December are unaudited.

Financial Highlights

· Full year volumes up 4%, in line with guidance and driven by a strong performance in our Commercial business

· Total gross cash unit margin of $73 per thousand litres (2017: $74), with H2 2018 gross cash unit margin of $71 per thousand litres, primarily impacted by market conditions in Morocco

· Gross profit up 2% to $624 million, with higher volumes more than offsetting lower margins

· Growth in adjusted EBITDA of 6% to $400 million

· Net income of $146 million, up 13% year-on-year

· Adjusted diluted EPS of $0.14 and diluted headline EPS of $0.11 for the year

· Generated strong adjusted free cash flow of $149 million, 8% higher than 2017

· Leverage ratio decreased to 0.79x (2017: 0.97x)

· Proposed final dividend of 1.3 cents per share, bringing the full year dividend to 1.9 cents per share, 30% of attributable net income (pro-rated for the period post IPO)

Strategic and Operational Highlights

· Further expanded our Shell-branded network by opening a net total of 88 new retail service stations and 119 new Non-fuel retail offerings

· Successful transaction with Engen, which completed on 1 March 2019, significantly increasing our footprint across Africa

· Total Recordable Case Frequency of 0.192, below industry peers

· The first company in Africa, and one of the first 10 companies globally, to be certified under ISO 37001 standard for anti-bribery management systems

· Completed the first phase of the deployment of our new ERP system, the first step on our data journey

Engen1

As previously announced, on 1 March 2019, Vivo Energy completed the transaction to acquire Engen International Holdings (Mauritius) Limited, adding 230 Engen-branded service stations and eight new countries to our network, which now includes 2,130 service stations, across 23 African markets. The eight new markets are Gabon, Malawi, Mozambique, Reunion, Rwanda, Tanzania, Zambia and Zimbabwe. Engen's operations in Kenya (where we already operate) is the ninth country included in the transaction.

For the year ended 31 December 2018, the nine entities that have transferred to Vivo Energy sold approximately 1.0 billion litres of fuel (2017: 0.9 billion). Unaudited management adjusted EBITDA for the entities was approximately $33 million (2017: $33 million), of which $24 million is attributable2 (2017: $26 million) to the business, with attributable net cash on hand of approximately $51 million3 (2017: $48 million). 

Vivo Energy believes that there is significant potential to grow the Engen business by leveraging our platform and operating model and thereby increasing the Group's market share. Our current plans are to maintain the Engen brand in the eight new operating countries, as we believe that the Engen brand is strong and well-established. However, we will rebrand Engen service stations in Kenya to the Shell brand in accordance with the Shell Brand Licence Agreement.

2019 Outlook 

In 2019, we expect to build further on the good momentum from 2018, delivering low to mid double-digit percentage volume growth from a combination of organic growth across our existing markets and the integration of the newly acquired Engen operations. Based on current market conditions in Morocco and a more conservative outlook in the Commercial segment we expect to achieve a US dollar gross cash unit margin in the high sixties per thousand litres for the year. This is on the assumption that there are no further material changes to the operating environment in Morocco during the year. Overall the prospects for the Group remain positive, we are excited by the opportunities that our expanded portfolio will bring, and expect to continue to build our retail footprint across our markets by opening between 80 to 100 new retail service stations across the 23 high growth countries in which we now operate.

Ends

1 Engen data points are based on Engen management information reporting.

2 Based on Engen management information figure. 100% of unaudited management adjusted EBITDA includes minority shares. Minority interests include 40% in Gabon and 51% in Zimbabwe.

3 Includes approximately $25 million of attributable cash on hand in Zimbabwe at the official exchange rate at 31 December 2018.

Results Presentation

Vivo Energy plc will host a presentation for analysts and investors today, 6 March 2019 at 09.00 GMT, which can be accessed at https://www.investis-live.com/vivo-energy/5c597101186fe7100054ae95/tolt

Conference call details:

Please dial into the call at least 15 minutes prior to the conference start time.

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 2,130 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) to business customers across a range of sectors including marine, mining, construction, power, transport, and manufacturing. Jet fuel is sold to customers under the Vitol Aviation brand.

The Company employs around 2,700 people and has access to 1,081,000 cubic metres of fuel storage capacity. The Group's joint venture, Shell and Vivo Lubricants B.V., sources, blends, packages and supplies Shell-branded lubricants and has blending capacity per annum of around 158,000 metric tonnes at plants in six countries (Ghana, Guinea, Côte d'Ivoire, Kenya, Morocco, and Tunisia).

This announcement is available on the Company's website: http://investors.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. 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 speak only as of the date of this report. The Company and the Directors expressly disclaim any obligation or undertaking to update these forward-looking statements contained in the document to reflect any change in their expectations or any change in events, conditions, or circumstances on which such statements are based unless required to do so by applicable law.

Chief executive Officer's statement

Just a year ago, we were a privately owned business. Today, following our IPO in May 2018, we are a publicly listed company accountable to many shareholders, with strong governance processes in place. I would like to pay tribute to my team right at the start of this statement - their commitment, skills and sheer hard work made the IPO not only possible but hugely successful. And I also want to thank Vitol and Helios, our founding owners, for their strong backing for the IPO. Most importantly, the IPO did not distract from our business and we have delivered good results for 2018.

As well as delivering the IPO, we've finalised the transaction to acquire key parts of the Engen business. This deal, which completed on 1 March 2019, extends our footprint into eight new countries, increasing our presence to 23 African markets, further diversifying our business and opening up new opportunities to accelerate growth across Africa. And as if that wasn't enough behind-the-scenes activity for one year, we also prepared the ground for future efficiencies by implementing the first stages in a new Enterprise Resource Planning (ERP) system that will transform our analytical capabilities and efficiency.

Performance highlights

We grow by developing our business - both organically and inorganically - across a continent that's surging forward. Throughout Africa, the demographic and economic trends are almost universally positive and supportive of our business model. More people are becoming more affluent and, with higher purchasing power, are driving demand for our business - not just for fuels and lubricants but also for fast food, retail and the many other products and services we offer on our retail service stations. As consumer spending power increases, so too does activity in the Commercial sector. This in turn means increased fuel and lubricant demand from companies involved in construction, mining, aviation, transport and many other sectors.

We're enormously proud to have delivered growth, in every single year since our formation in 2011. 2018 has been no different.

It was important to start our life as a public company by delivering against our guidance and I am delighted to say that we have done so, in spite of several external headwinds, as our diversified business model proved resilient. Our volumes grew by 4% year-on-year, to 9,351 million litres, and we delivered a gross cash unit margin of $73 per thousand litres.

Volume growth was driven by a strong performance in our Commercial business. Our Retail business grew by 3% in the year, despite the impact of industry supply shortages in the third quarter. On the gross cash unit margin side, we saw strong performance in the Commercial business which partially offset pressure on our Retail segment through the second half of the year. This was primarily as a result of market conditions in Morocco, which we expect will continue into 2019.

The strong operational performance is reflected in our financial performance where we delivered continued year-on-year adjusted EBITDA growth. Group adjusted EBITDA of $400 million was 6% higher than 2017 (EBIT of $276 million, 14% higher than 2017), with adjusted net income of $178 million being 4% higher than the previous year. We also generated strong adjusted free cash flow of $149 million and continued to deliver our business, with a leverage ratio now standing at 0.79x. This has meant that the Board recommends a final dividend of 1.3 dollar cents per share, bringing the full year dividend to 1.9 dollar cents per share, representing 30% of attributable net income, pro-rated for the period since IPO and in line with our dividend policy. If approved at our Annual General Meeting, the final dividend will be paid to shareholders on 10 June 2019.

Much of the focus this year has been on our Moroccan Retail segment as a result of the fuel sector being caught up in wider consumer activism in the country in the second quarter. During 2018, we continued to operate efficiently and have invested to grow our network and our product offerings in the country, albeit at lower margins in the second half of the year. We continue to engage with the relevant government stakeholders, primarily through the industry body. As a result of the Moroccan market conditions and the growth of Vivo Energy in our other markets and segments, the EBITDA contribution of the Moroccan retail segment in 2018 was 18%, compared to 29% in 2017 (and 14% in the second half of 2018). We expect this 18% contribution to fall further in 2019, primarily as a result of the contribution of the new Engen markets in 2019.

Safety - no room for compromise or complacency

We continued to have a very strong Health, Safety, Security and Environment (HSSE) record which shows us exceeding our targets and remaining ahead of our peers on safety performance.

However, it saddens me greatly to report that in October we lost a colleague in a Liquefied Petroleum Gas (LPG) fire at a customer's factory in Morocco. Although the investigation into the incident is ongoing, the learnings have been shared widely and acted on, to ensure such a tragedy can never happen again.

We understand that maintaining our strong track record as we grow will become ever more challenging, and our promise to our teams remains the same - we'll give them great careers, we'll empower them to make decisions and we'll do everything we can to make sure that they always go home safely at the end of their working day.

Becoming the most respected energy company in Africa

The way we treat our teams is at the heart of our vision: to become the most respected energy company in Africa. We could have aimed to be the fastest growing, the biggest or the most profitable - but to us, respect is the mark of a business that truly understands its potential to be a long-term positive force in the world.

We want to be respected by all our stakeholders - by employees for our uncompromising focus on HSSE and the way they are recognised and rewarded… by customers for the unbeatable quality of our products and the excellent service our teams provide… by communities for the way we work hard to be good and supportive neighbours… and of course by shareholders for our high standards of integrity, transparency and governance, and our track record of delivering growth.

Looking ahead

The coming year will be exciting as the Engen transaction will enable us to take our tried and tested way of working into new markets. We will continue to expand our retail network, our Non-fuel retail offerings and will drive premium fuel penetration in our markets.

Whilst we don't know what macroeconomic factors outside our control might occur and impact the African economy, our business model is proven, our financial model is resilient and our entrepreneurial teams are energised and empowered.

2019 outlook

In 2019, we expect to build further on the good momentum from 2018, delivering low to mid double-digit percentage volume growth from a combination of organic growth across our existing markets and the integration of the newly acquired Engen operations.

Based on current market conditions in Morocco and a more conservative outlook in the Commercial segment we expect to achieve a US dollar gross cash unit margin in the high sixties per thousand litres for the year. This is on the assumption that there are no further material changes to the operating environment in Morocco during the year.

Overall the prospects for the Group remain positive, we are excited by the opportunities that our expanded portfolio will bring, and expect to continue to build our retail footprint across our markets by opening between 80 and 100 new retail service stations across the 23 high growth countries in which we now operate.

It's been a privilege to work alongside my colleagues over this last year and I would like to thank every single one of them for the outstanding contributions that they have each made in 2018.

I look forward to sharing more successes in the months ahead.

Christian Chammas

Chief Executive Officer

OPERATIONS REVIEW

Overview of operations by segment

Retail

Overview

Retail is the engine that powers the Group's track record for delivering both organic and inorganic growth. In fact we're the second largest retailer in Africa outside South Africa, in terms of site numbers. Every day of 2018, some 800,000 retail customers relied on Vivo Energy to help them run their vehicles and live their lives. We focus on opening new service stations, maximising the value generated by our existing sites, giving more people more reasons to visit our service stations.

2018 ReVIEW

The Retail segment reported adjusted EBITDA of $227 million in 2018, representing 57% of the Group's adjusted EBITDA. Volumes grew by 3% and gross profit and adjusted EBITDA were in line with 2017.

Retail fuel

In 2018 we sold a record of 5,354 million litres of fuel to our retail customers. Year-on-year volume growth of 3% was fuelled by our ability to develop our network and by focusing on our strategic and operational excellence initiatives. In 2018, we maintained the leading or number two market share position in 14 of our 15 markets.

During the last year, we added a net total of 88 new sites to our network of Shell-branded service stations, exceeding our target of opening 80 sites per year. Volume from new sites represented 2% (2017: 2%), of year-on-year volume growth.

Existing portfolio growth was lower than in 2017 at 1% (2017: 5%) primarily as a result of external short‑term supply constraints in the third quarter and sites that were either closed or transferred to the Commercial segment due to changes in supply agreements. 2017 also benefitted from a higher number of 'prior year' service station openings than 2018. Average throughput per site was in line with the previous year thanks to our targeted consumer-focused approach to marketing and increased penetration of differentiated fuel product offerings in our markets.

Gross cash unit margin for Retail fuel was lower at $75 per thousand litres ($78 per thousand litres in 2017). The market conditions in Morocco in the second half of the year were the primary reason for lower unit margins in 2018. The EBITDA contribution of the Moroccan retail segment was lower in 2018 than 2017, and we expect this to fall further in 2019, primarily as a result of the contribution of the new Engen markets.

Non-fuel retail

Gross cash profit from our Non-fuel retail business rose by 15% year-on-year to $25 million. This increase is attributable to our continued efforts to increase outlet penetration in our network. This has allowed us to further leverage our service stations to take advantage of the Non‑fuel retail opportunity in our markets which in turn drives fuel volumes through the 'halo effect'.

During 2018, we continued to roll out our strategy of bringing more major food brands to our service stations, opening 80 convenience retail shops and 39 new quick service and fast casual restaurants.

Quick service restaurants are magnets for customers - increasing footfall and improving sales across all the services we offer, while also generating significant revenue in their own right. In 2018 we opened the first KFC in the Côte d'Ivoire and in Botswana we now have 12 KFC stores through a joint venture with a local partner. 

Commercial

Overview

Our Commercial business is founded on a proven customer value proposition. We not only ensure a reliable supply of high quality fuels to a wide range of customers operating in high-growth sectors - we also support those products with extensive services.

In terms of geographies, we worked with miners in ten different countries, with marine customers in seven countries and supplied aviation fuel at 24 airports in eight countries. We also enabled consumers in eight countries to heat their homes, run their businesses and cook with LPG. Our LPG business relies on an effective multi-channel distribution network to supply butane and propane direct to consumers, predominantly for cooking and heating. We continue to build market share - for example, in Côte d'Ivoire we achieved double digit growth in 2018, and from a standing start in 2015, we now hold almost a 10% share of the market.

2018 Review

Strong performance in Aviation, Marine and LPG secured a 4% year-on-year volume growth for the Commercial segment. Gross profit rose by 13% to $163 million, and gross cash unit margin was higher at $47 per thousand litres, an increase of 7% over the previous year. Commercial adjusted EBITDA of $122 million, accounted for 30% of Group adjusted EBITDA for the year.

Core commercial

We sell LPG and bulk fuel to customers in industries such as mining, construction and power, and also provide LPG to consumers. Core commercial accounted for 73% of total Commercial volumes (2017: 76%) and 83% of total Commercial gross cash profit (2017: 85%).

Gross cash unit margin rose by 9% to $53 per thousand litres, on the back of our ability to develop customer value propositions and target profitable growth in high margin sectors. In LPG, margins were higher due to profitable bulk sales to customers in the manufacturing industry. Continued cost savings through transportation optimisation initiatives and operational excellence also benefited gross cash unit margins.

Gross cash profit climbed by 9% to $150 million, thanks to the increased margin and a 1% increase in volumes year-on-year. Commercial fuel volumes were impacted by lower fuel demand in the power sector and delays in government contracts in some countries. The negative impacts were offset by an increase in demand for mining fuel driven by increased exploration activities. LPG volumes benefited from the continued development of our distribution networks and improved point of sale coverage.

Aviation and Marine

We delivered a strong contribution from this segment in 2018. Aviation and Marine accounted for 27% of total Commercial volumes (2017: 24%) and 17% of total Commercial gross cash profit (2017: 15%). Volumes grew by 16% year‑on-year while gross cash profit jumped 28% to $31 million for the year ended 31 December 2018. Gross cash unit margin increased to $30 per thousand litres from $27 per thousand litres in 2017.

High margin spot sales, increasing crude oil prices and favourable sourcing of aviation fuel helped drive higher gross cash unit margins.

In Marine, volumes rose amid higher demand on shipping routes where our marine bunkering operations are located. Our continuing efforts to secure opportunistic spot sales at favourable pricing had a positive impact on both margins and volumes. 

Lubricants

Overview

In the majority of countries where we operate, our Lubricants business is the market leader or number two player, based on 2017 data.

Our Lubricants segment is made up of retail and commercial lubricants sales of distributed products from SVL, our 50% owned blending business. SVL owns and operates two blending plants and has interests in a further four joint venture facilities. Profit from SVL is included in the segment EBITDA, but other metrics such as volumes and gross cash profit are from our distribution and marketing activities.

Over the last 12 months our effective marketing campaigns encouraged customers to access our Shell-branded products in new ways. Active promotion and entrepreneurial spirit are absolutely crucial to forecourt sales - for example, during 2018 we continued to roll out and expand a programme that puts trained oil specialists beside the pumps at the forecourts and in dedicated lube bays at key service stations. Directly incentivised to encourage motorists to choose Shell-branded lubricants, these professionals offer oil checks and top-ups.

2018 review

Volumes in this segment rose 4% year-on-year, however gross cash profit was down by 6%, primarily due to higher base oil prices in 2018.

As the base oil price increases, there is a lag before we are able to pass on increases to customers as a result of pricing commercial contractual terms and holding inventories required for the manufacture of lubricants through our SVL joint venture.

Adjusted EBITDA grew 21% to $51 million, mainly attributable to our SVL joint venture that ensures a partnership across the value chain. Lubricants accounted for 13% of the Group's adjusted EBITDA.

retail lubricants

This part of our business sells lubricants to retail customers and consumers. During the year, Retail lubricants accounted for 61% of total Lubricants volumes (2017: 61%) and 60% of total Lubricants gross cash profit (2017: 62%). Volumes increased 5% in 2018, although lower than anticipated efficiencies at some of our distributors meant that we marginally missed achieving our full growth potential. Unit margins decreased to $513 from $592 per thousand litres in the previous year, mainly as a result of an increase in base oil prices. Our response to the increased cost of base oil was to introduce active price management in line with our pricing strategy and marketing initiatives focused on selling an optimised sales mix of premium products that ensure higher margins.

commercial lubricants

The Commercial lubricants segment comprises sales to commercial customers as well as export sales to more than ten countries outside our portfolio. Commercial lubricants accounted for 39% of total Lubricants volumes (2017: 39%) and 40% of total Lubricants gross cash profit (2017: 38%).

Despite major construction, power and mining projects that were either postponed, delayed or cancelled, activity increased towards the end of the year and this led to volumes rising by 3%. Unit margins were $544 per thousand litres in 2018, down by 4% over the previous year. As was the case for Retail lubricants, this was primarily due to the increase in base oil prices from 2017 to 2018.  

FINANCIAL REVIEWConsolidated results of operations

Summary Income Statement

non-gaap measures

1 Refer to general information (note 1) in the consolidated financial statements. Weighted average number of ordinary shares and diluted number of shares for the year ended 31 December 2018 relate to Vivo Energy plc and for the year ended 31 December 2017 relate to Vivo Energy Holding B.V.

Analysis of consolidated results of operations

Volumes

In 2018 total volumes sold were 9,351 million litres, up 4% year-on-year. Retail fuel, our largest segment, accounted for 57% of total volumes and increased by 3% year‑on-year despite short-term external supply constraints that impacted sales in the third quarter. Our Commercial segment had a strong year, with volumes higher by 4% year-on-year, driven by new Aviation contracts and successful Marine tenders and spot sales. Commercial volumes represented 41% of total volumes. Lubricants volumes accounted for 2% of total volumes and grew by 4% year-on-year.

Revenue

Revenue increased by $855 million, or 13% to $7,549 million in the year ended 31 December 2018 from $6,694 million in 2017. Higher revenue was primarily driven by volume growth as well as rising crude oil prices from 2017 to 2018.

Cost of sales

Cost of sales increased by $845 million, or 14% to $6,925 million in the year ended 31 December 2018 from $6,080 million in 2017. This increase is due to the volume growth and higher crude oil prices between 2017 and 2018.

Gross profit

As a result of the volume growth and favourable foreign currency exchange movements, gross profit amounted to $624 million for the year compared to $614 million in 2017 (2% growth year-on-year). These positive drivers were partly offset by a decrease in unit margins largely attributable to market conditions in Morocco in 2018.

Gross cash profit

Gross cash profit was higher by $14 million, amounting to $680 million in the year. Total gross cash unit margin was $73 per thousand litres (2017: $74 per thousand litres). The decrease is primarily driven by market conditions in Morocco that impacted our Retail unit margin. Rising base oil prices during 2017 and 2018 resulted in lower unit margins in our Lubricants segment. Lower margins in Retail and Lubricants were offset by a strong unit margin increase of 7% in our Commercial segment.

Selling and marketing cost

Selling and marketing cost amounted to $197 million, marginally higher than 2017 ($194 million) mainly as a result of inflation and increased point of sale cost in relation to higher Aviation sales.

General and administrative cost

General and administrative costs, including special items, decreased by 7% to $183 million. The decrease was primarily driven by fair value adjustments of the Management Equity Plan in 2017 and 2018, partially offset by non-recurring IPO and Engen acquisition related costs, as well as reorganisation costs related to our cost optimisation programme.

Share of profit from joint ventures and associates

Share of profit from joint ventures and associates amounted to $28 million, of which $13 million was attributable to our SVL lubricants joint venture of which we acquired a 50% shareholding in December 2017.

Other income

Other income of $3 million (2017: $3 million) mainly relates to gains on disposal of PP&E and unrealised losses on financial instruments.

Adjusted EBITDA

Adjusted EBITDA increased by $24 million or 6% year-on-year to $400 million, driven by higher volumes, lower operating expenses as well as an increase in share of profit from joint ventures and associates.

Net finance expense

Net finance expense increased by $15 million or 48% to $46 million from $31 million in 2017. This net finance expense variation mainly resulted from higher long-term debt relative to the same period in 2017. The increase in borrowings is attributable to the term loan facility entered into in June 2017, and drawings on an incremental facility in December 2017, to fund the acquisition of the participation in SVL.

Income taxes

For the year ended 31 December 2018, the ETR decreased to 36% from 38% compared to the comparative period of 2017. The decrease is mainly attributable to lower expenses not tax deductible, and higher non-taxable income.

Net income

Net income, including the impact of special items was $146 million, up 13% from $130 million for the year ended 31 December 2017.

Earnings per share

Basic earnings per share amounted to 11 dollar cents per share. Adjusted diluted earnings per share, excluding the impact of special items were 14 dollar cents. 

Consolidated financial position

SUMMARY BALANCE SHEET

Assets

PP&E and right-of-use assets increased by $36 million to $770 million, principally due to the continued investment in our retail network, partially offset by depreciation expense.

Intangible assets increased by $14 million to $134 million, largely due to additions relating to our new ERP software, offset by amortisation and unfavourable foreign currency movements.

Investments in joint ventures and associates increased by $5 million. The main movements were from an increase in our share of profit from joint ventures and associates amounting to $28 million partially offset by dividends received of $23 million.

Inventories increased by $88 million principally driven by increased activities, higher crude oil prices as well as the timing of purchases and shipments. Average monthly inventory days for the period were 24 days (2017: 22 days).

Trade receivables increased by $31 million driven by increased sales volumes and higher crude oil prices. Average monthly Days sales outstanding for the period was 16 days (2017: 17 days).

Other assets (non-current and current) largely relate to other government benefits receivable from our regulated markets, prepayments, VAT and duties receivable as well as income tax receivables. The increase of $54 million is mainly driven by other government benefits receivable, principally as a result of the timing of payments and higher operational activities.

Equity and liabilities

The non-current portion of borrowings and lease liability decreased by $106 million mostly due to the scheduled repayments of the Group's loan facility and repayments of the lease liability.

Other liabilities (non-current and current) principally relate to employee liabilities, oil fund liabilities, deposits owed to customers, other tax payable and provisions. The decrease of $49 million is largely due to the revaluation and repayment of the Management Equity Plan related liability and other employee-related liabilities.

Current portion of borrowings and lease liability increased by $28 million to $300 million, primarily due to an increase in individual operating entities' short-term bank facilities used for working capital management.

Trade payables increased by $192 million primarily due to an increase in crude oil prices, increased activities and the timing of purchases and shipments. Average monthly Days payable outstanding for the period was 56 days (2017: 53 days).

Dividends

The Board is recommending a final dividend per share of 1.3 dollar cents amounting to $16 million and bringing the full year dividend to 1.9 dollar cents per share, amounting to $24 million. This represents a pay-out ratio of 30% of attributable net income, pro-rated for the period since IPO.

Liquidity and capital resources

adjusted FREE CASH FLOW

1 Prior year comparatives were reclassified where necessary.

2 Excluding cash flow from acquisition of businesses.

3 Cash impact of special items. Special items are explained and reconciled in the Non-GAAP financial measures.

The Group maintained a strong cash generation with an adjusted free cash flow of $149 million (2017: $138 million), that was driven by a high cash inflow from operating activities mainly as a result of strong business performance.

Cash flow from operating activities fully funded capital expenditures that were higher than 2017 mainly due to the investment in our new ERP system and significant investments in our retail station network.

We paid income tax to the amount of $103 million for the year ended 31 December 2018 (2017: $114 million).

CAPITAL EXPENDITURES

The expansion and development of our retail network represented the majority of our capital expenditure during the year. This included the construction of retail sites, Non-fuel retail offerings as well as related infrastructure (including storage facilities) to support this network.

Special projects relate to technology and other strategic investments. This included a significant investment in the implementation of a new ERP system and also further automation of our operations.

NET DEBT AND AVAILABLE LIQUIDITY

1 Short-term bank borrowings exclude the current portion of the long-term debt.

1 For the description and reconciliation of non-GAAP measures refer to non-GAAP measures below.

Net debt at 31 December 2018 decreased to $318 million from $366 million at 31 December 2017. The decrease was primarily due to lower long-term debt and lease liabilities as a result of scheduled repayments, partially offset by an increase in short-term bank borrowings and a decrease in cash and cash equivalents.

The leverage ratio was 0.79x at 31 December 2018 from 0.97x at 31 December 2017 due to the decrease in net debt and an increase in adjusted EBITDA.

In May 2018, the Company established a new multi-currency revolving credit facility of $300 million. The multi-currency revolving credit facility consists of a primary $300 million and an additional $100 million contingent upon events after the listing. This credit facility remained fully undrawn at year-end. At the end of February 2019 an amount of $62 million was drawn in relation to the Engen acquisition. Available short-term capital resources amounted to $1,674 million compared to $1,184 million at 31 December 2017.

The table below sets the Group's financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

The Group has purchase obligations, under various agreements, made in the normal course of business. The purchase obligations are as follows, as at:

Non-GAAP financial measures

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 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 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.

Reconciliation of non-GAAP measures

1 In May 2018, the Company became listed on the London Stock Exchange Main Market for listed securities and the Main Board of the JSE Limited by way of secondary inward listing. All IPO-related expenses are considered to be special items. Furthermore, on 4 December 2017, the Company agreed to enter into a sale and purchase agreement with Engen Holdings (Pty) Limited ('Engen Holdings'), a 100% subsidiary of Engen Limited, in relation to the purchase of shares in Engen International Holdings (Mauritius) Limited ('Engen International Holdings Limited') for the exchange of a shareholding in Vivo Energy, and a cash element. Related integration project expenses are treated as special items.

2 Restructuring expenses relate to further optimising the organisation and are substantial in scope and impact and do not form part of the underlying core operational activities.

3 Refer to general information (note 1) in the consolidated financial statements.

1 In May 2018, the Company became listed on the London Stock Exchange Main Market for listed securities and the Main Board of the JSE Limited by way of secondary inward listing. All IPO-related expenses are considered to be special items. Furthermore, on 4 December 2017, the Company agreed to enter into a sale and purchase agreement with Engen Holdings (Pty) Limited ('Engen Holdings'), a 100% subsidiary of Engen Limited, in relation to the purchase of shares in Engen International Holdings (Mauritius) Limited ('Engen International Holdings Limited') for the exchange of a shareholding in Vivo Energy, and a cash element. Related integration project expenses are treated as special items.

2 Restructuring expenses relate to further optimising the organisation and are substantial in scope and impact and do not form part of the underlying core operational activities.

3 ROACE includes the impact of the 50% acquisition of SVL which completed in December 2017. ROACE excluding the impact of the 50% acquisition of SVL was 28% in 2017. 

PRINCIPAL RISK AND UNCERTAINTIES

Our activities are exposed to various risks and uncertainties. These are risks that we assess as relevant and significant to our business at this time, however there might be other risks that could emerge in the future. Overall, our risk management programme focuses on the unpredictability of the global market and seeks to minimise potential adverse effects on financial performance.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

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

1 Formerly Vivo Energy Holding B.V. refer to general information (note 1). 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 31 DECEMBER 2018

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

1 Formerly Vivo Energy Holding B.V. refer to general information (note 1).

The consolidated financial statements were approved by the Board of Directors and authorised for issue on 5 March 2019 and were signed on its behalf by:

Christian Chammas Johan Depraetere

Chief Executive Officer Chief Financial Officer

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

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

1 Formerly Vivo Energy Holding B.V. refer to general information (note 1).

2 Equity-settled incentive schemes include the Long-Term Incentive Plan ('LTIP') and the IPO Share Award Plan.

3 Refer to the general information (note 1).

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018

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

1 Prior year comparatives were reclassified where necessary.

NOTES

1. General information

Vivo Energy plc, a public limited company, was incorporated in conjunction with a pre-IPO reorganisation on 12 March 2018 in the United Kingdom under the Companies Act 2006 (Registration number 11250655). The Company is registered in England and Wales and is limited by shares. The address of the registered office is 5th Floor, The Peak, 5 Wilton Road, London, SW1V IAN, United Kingdom. The Company 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 on 10 May 2018. References to 'Vivo Energy' or the 'Group' mean the Company and Vivo Energy Holding B.V. ('VEH', the holding company of the Group until Admission), together with its consolidated subsidiaries and subsidiary undertakings. Therefore, the consolidated financial statements for the year ended 31 December 2018 are presented for the Group with continuity, including the impact of the IPO reorganisation.

2. Basis of preparation

The Group's principal accounting policies are unchanged from those set out in the Prospectus published in connection with the Group's initial public offering in May 2018, which is available on the Company's website.

The financial information does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 31 December 2017, but is derived from those accounts. Statutory accounts for 2018 will be delivered to the Registrar of Companies in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their reports and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 31 December 2018 is now complete. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS.

This announcement was approved by the Board of Directors on 5 March 2019.

3. Financial risk management

3.1 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 year and the comparative year:

1 Trade receivables include credit secured receivables of $197m.

2 Other assets (note 16) exclude the following elements that do not qualify as financial instruments: prepayments, VAT and duties receivable and other government benefits receivable.

1 Other liabilities (note 26) exclude the following elements that do not qualify as financial instruments: other tax payable and deferred income.

1 Trade receivables include credit secured receivables of $135m.

2 Other assets (note 16) exclude the following elements that do not qualify as financial instruments: prepayments, VAT and duties receivable and other government benefits receivable.

1 Other liabilities (note 26) exclude the following elements that do not qualify as financial instruments: other tax payable and deferred income.

The Group has classified equity investments as financial instruments at FVTOCI (without recycling). These investments are measured using inputs for the asset or liability that are in absence of observable market data, based on net asset value of the related investments (level 3 in the IFRS 13 fair value measurement hierarchy). Because the value is based on the net asset value of the related investments, no sensitivity analysis is presented.

3.2 Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

Market risk

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.

Management has set up a policy to require Group companies to manage their foreign exchange risk. Group treasury is required to approve all hedging plans before execution. The Group has a number of natural hedges in place, where the timing of foreign currency payments is matched with the receipts in a similar currency. Forward contracts are used to manage the foreign exchange risk arising from future obligations.

Foreign currency exposure on the consolidated net monetary position is $274m (2017: $166m). Other monetary balances in other currencies are not material. If the non-US dollar held currency had weakened/strengthened by 10% against the US dollar with all other variables held constant, pre-tax profit for the year would have been $27m (2017: $17m) lower/higher, mainly as a result of foreign exchange gains/losses on translation of non-US dollar denominated receivables and payables.

Price risk

The Group generally seeks to manage its exposure to commodity price risk through careful inventory management and as at 31 December 2018 the Group was not significantly exposed to commodity price risk. In regulated markets, the Group has no price exposure as long as the sale of the inventory is matching the timing of the price structures updates, however in unregulated markets, such as Marine and Aviation, the Group may be exposed to price changes in the short-term if inventory is not carefully managed. The Group does not hold equity securities for trading and is, therefore, not exposed to price risk.

In Botswana, Guinea, Madagascar, Senegal and Morocco the Group is financially compensated by the local government for the effect of these price restrictions. For further information see note 3.2 Credit risk. For some countries (such as Senegal) the transport costs are subsidised.

Cash flow interest rate risk and fair value interest rate risk

The Group's interest rate risk arises from borrowings. It is Group policy to have short-term loan facilities at floating rate and medium to long-term facilities at floating or fixed rate. Swap from floating to fixed is possible when there is a clear economic benefit, subject to Group Treasury's approval. The Group has long-term borrowing facilities which carry variable interest rates and therefore the Group is exposed to a cash flow interest rate risk as at 31 December 2018. The Group also has some short-term overdraft facilities which carry a fixed interest rate exposing the Group to fair value interest rate risk. But given that the rate is fixed for a short period of time, and that these facilities terms are subject to renegotiation should interest rate move, the exposure is minimal. At 31 December 2018, if interest rates on US dollar-denominated and Euro-denominated borrowings had been one hundred basis point higher/lower with all other variables held constant, the calculated post-tax profit for the year would have been $5m (2017: $2m) higher/lower, mainly as a result of higher/lower finance expense on floating rate borrowings.

Credit risk

Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances. Each local entity is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Credit risk arises from cash and cash equivalents, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables.

All external customers must have their identity checked and credit worthiness assessed and approved prior to the signing of a binding agreement or contract. Credit worthiness is assessed for all customer based on commercial data, but also considers financial data when a credit limit exceeds $15,000. The utilisation of credit limits is regularly monitored and checks performed on outstanding debt at regular intervals. Where the environment allows, security (bank guarantees) will be taken to secure the Group's exposure. For banks and financial institutions, management of the operating entity are responsible for making the short-term placements with the banks after approval from Group Treasury.

The investment policy is based in order of importance on security, liquidity and yield. Management will assess the counterparty risks of the third party based on financial strength, quality of management, ownership structure, regulatory environment and overall diversification. Group Treasury is required to approve all investment decisions to ensure they are made in line with the Group's credit policies. The Group has provided secured loans to individual employees (note 16).

As at 31 December 2018, the Group is exposed to credit risk in relation to other government benefits receivables mainly in Botswana, Morocco, Madagascar, Senegal and Guinea. The Morocco funds of $27m (2017: $31m) relate to compensation provided by the government for setting the price of butane on sales to retail customers. These other government benefits receivable are partially provided for, the total provision amounted to $15m at 31 December 2018 (2017: $18m). Management believes that the credit risk in relation to these balances (note 16) is relatively low.

In Morocco customer receivables to the amount of $24m (2017: $27m) were assigned to Attijariwafa Factoring (subsidiary of Attijariwafa Bank), the assigned amount was received in cash and the corresponding receivable was derecognised and with regard to the late payment risk, the Group capped the exposure to six months maximum of interest at a rate of 4.70% per annum. This resulted in a continuous involvement accounting treatment where a substantial portion of the risk has been transferred. A continuous involvement liability of $0.5m (2017: $0.5m) was recognised. In addition, other government benefits receivable to the amount of $44.7m were assigned to Banque Centrale Populaire, the assigned amount was received in cash and the corresponding receivable was derecognised. With regard to the late payment risk, the Group capped the exposure to 5.5 months maximum of interest at a rate of 3.79% per annum. A continuous involvement liability of $0.7m was recognised.

The tables below show the balances of the major counterparties at the reporting dates:

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Due to the cyclical nature of the underlying businesses, the directors aim to maintain flexibility in funding by keeping committed credit lines available.

Management monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flow. This is generally carried out at local level in the operating companies of the Group in accordance with practice and limits set by Group policies. Where short-term liquidity is needed, the operating entities organise short-term facilities to cover the deficit which have to be authorised by Group Treasury.

The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

1 Borrowings exclude, as of 31 December 2018 the undrawn multi-currency revolving credit facility of $300 million (note 23).

2 Other liabilities (note 26) exclude the following elements that do not qualify as financial instruments: other tax payable and deferred income.

1 Other liabilities (note 26) exclude the following elements that do not qualify as financial instruments: other tax payable and deferred income.

Net investment hedge

Foreign currency exposure arises from the Group's net investment in its several subsidiaries that have the Cape Verde Escudo ('CVE') and the CFA Franc ('XOF') functional currency, both currencies being 100% pegged to the Euro ('EUR'). Therefore the risk arises from fluctuation in spot exchange rates between these currencies (or the EUR) and the US dollar, which causes the amount of the net investment to vary.

The hedged risk in the net investment hedge is the risk of a weakening the CVE and the XOF currencies (or the EUR) against the US dollar which will result in a reduction in the carrying amount of the Group's net investment in these foreign operations.

Part of the Group's net investment in those subsidiaries is hedged by a EUR denominated secured bank loan (carrying amount: $124m) (2017: $157m), which mitigates the foreign currency risk arising from the revaluation of the subsidiary's net assets. The loan is designated as a hedging instrument for the changes in the value of the net investment that is attributable to changes in the spot rate.

To assess hedge effectiveness, the Group determines the economic relationship between the hedging instrument and the hedged item by comparing changes in the carrying amount of the debt that is attributable to a change in the spot rate with changes in the investment in the foreign operation due to movements in the spot rate (the offset method). The Group's policy is to hedge the net investment only to the extent of the debt principal.

The amounts related to items designated as hedging instruments were as follows:

3.3 Capital management

The Group capital management objective is to maintain a commercially sound consolidated statements of financial position with the aim of maximising the net cash return to the shareholders, whilst maintaining a level of capitalisation that is commercially defensible and which leads to an effective and optimised working capital structure.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital.

Net debt is calculated as total borrowings and lease liabilities (including 'current and non-current borrowings and lease liabilities' as shown in the consolidated statements of financial position) less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the consolidated statements of financial position plus net debt.

4. Critical accounting estimates and judgements

4.1 Accounting judgements

In the process of applying the Group's accounting policies, management has made the following judgements, apart from those involving estimates, which have the most significant effect on the amounts recognised in the consolidated financial statements:

Accounting for leases under IFRS 16

In establishing the lease term for each lease contract that has an option to extend, judgement has been applied to determine the extension period. When it is concluded that it is reasonably certain that the extension option will be utilised, the lease term is extended to include the reasonably certain period of five years. The lease agreements have the option to extend the leases and the option to terminate the leases. The extension options in different contracts vary between five years to unlimited period. The Group uses significant assumptions that all of the existing leases, that are expiring within the following five years, that have an extension option, will be extended for an additional five years period, when determining the lease term.

In addition, IFRS 16 requires lease payments to be discounted using the interest rate implicit in the lease. In case the interest rate implicit in the lease cannot be readily determined, the incremental borrowing rate should be used. That is the rate of interest that a lessee would have to pay to borrow over a similar value to the right-of-use asset in a similar economic environment. Accordingly, the Group elected to use the local borrowing rates for each operating unit at the commencement date. That is the rate at which local operating units would need to borrow to acquire the asset. For additional details relating to leases refer to note 27.

Deferred tax position

Recognition of deferred tax assets requires assessment of when those assets are likely to reverse and judgement on the availability of sufficient taxable profits upon reversal. Deferred tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. The deferred tax assets as at 31 December 2018 are $36m (2017: $43m) as presented in note 10. Deferred tax assets recorded are re-assessed at each period.

4.2 Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are discussed below.

Retirement benefit obligations

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of the estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of government bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation.

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 25. The assumptions are reviewed annually.

Goodwill impairment assessment

In 2012 goodwill was recognised in relation to the wave 2 completion, comprising Guinea, Burkina Faso and Côte d'Ivoire. In 2013 goodwill was recognised in relation to the wave 6 completion, comprising Ghana. For the purpose of impairment testing, goodwill was allocated to each country which represents the lowest level within the entity at which the goodwill is monitored for internal management purposes.

The recoverable amount of each cash generating unit was determined based on a value in use calculation which was based upon free cash flows (in their local currencies) from the five-year strategic plan prepared for each cash generating unit. The terminal value was estimated based upon a perpetuity growth rate of 2%, reflecting an inflationary level of growth beyond the five-year plan. A cost of capital (based upon a weighted average cost of capital ('WACC')) in a range of 16%-17.5% was used to discount the free cash flows denominated in their respective currencies.

Based upon the goodwill impairment test, goodwill is not impaired. For goodwill to be impaired, the WACC would have to increase to approximately 40%.

Government related assets and liabilities

The Company has various assets from and liabilities to governments and authorities with respect to government benefits receivable as well as for taxes and duties. The Group constantly assesses underlying inherent risks and assumptions and as a consequence related accounting estimates are determined and adjustments are made to the carrying amounts of those assets and liabilities, where necessary. Refer to note 3.2 relating to credit risk.

Tax positions

Determining the Group's income tax positions requires interpretation of the tax laws in numerous jurisdictions. Resolution of tax positions taken can take several years to complete and can be difficult to predict. Therefore, judgement is required to determine the Group's income tax liability. Judgemental areas are in particular transfer pricing and expenses deductible for tax purposes. When it is considered probable that there will be a future income tax liability to a tax authority, a provision is recorded for the amount that is expected to be settled if this can be reasonably estimated. Income tax provisions are re-assessed each period.

5. Segment reporting

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

Retail segment - Retail fuel is aggregated with Non-fuel retail. Both the operating segments 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 its 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.

6. Reconciliation of Non-GAAP measures

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 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 key management performance measures.

The Group defines Headline earnings 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.

1 In May 2018, the Company became listed on the London Stock Exchange Main Market for listed securities and the Main Board of the JSE Limited by way of secondary inward listing. All IPO-related expenses are considered to be special items. Furthermore, on 4 December 2017, the Company agreed to enter into a sale and purchase agreement with Engen Holdings (Pty) Limited ('Engen Holdings'), a 100% subsidiary of Engen Limited, in relation to the purchase of shares in Engen International Holdings (Mauritius) Limited ('Engen International Holdings Limited') for the exchange of a shareholding in Vivo Energy, with a cash element. Related integration project expenses are treated as special items.

2 Restructuring expenses relate to further optimising the organisation and are substantial in scope and impact and do not form part of the underlying core operational activities.

1 Refer to the general information (note 1).

1 Weighted average number of ordinary shares and diluted number of shares for year ended 31 December 2018 relate to Vivo Energy plc and for the year ended 31 December 2017 to Vivo Energy Holding B.V.

2 Refer to general information (note 1).

7. General and administrative cost

Employee benefits

1 Total restructuring costs amount to $16.9m of which some elements are reflected in other employee benefits categories.

2 Share-based expense includes a fair value adjustment for the former management equity plan and the SVL management equity plan.

Included in the employee benefit expense for the year ended 31 December 2018, was social security expense of $2.3m (2017: $0.9m) and other pension costs of $0.2m (2017: $0.2m) relating to employees employed in the UK.

Employee benefits have been charged in:

The number of average full-time equivalent employees was as follows:

Depreciation and amortisation

Depreciation of property, plant and equipment, right-of-use assets and amortisation of intangible assets are separately disclosed in note 11, 27 and 12 respectively.

Audit fees

1 Audit fees for foreign entities are expressed at the average exchange rate for the year.

2 Audit-related fees in relation to interim financial statements reviews and brand fees reporting.

3 Tax advisory fees relate to advisory engagements.

4 Other assurance services relate mainly to the IPO.

8. Other income/(expense)

9. Finance income and expense

1 Includes an amount of $10m (2017: $10m) finance expense for leases in respect to IFRS 16 'Leases'.

10. Income taxes

Current income taxes

Analysis of income tax expense:

The reconciliation of income taxes, computed at the statutory rate, to income tax expense was as follows:

1 The statutory tax rate changed from 25% in 2017 to 19% in 2018 due to the ultimate parent entity being a tax resident in the United Kingdom in 2018 (formerly The Netherlands).

Deferred income taxes

The significant components of the Company's deferred income tax assets and liabilities were as follows:

1 The recognised deferred tax asset relates to $6.6m tax losses which is supported by expected positive results in coming years.

2 The unrecognised deferred tax assets mainly relate to tax losses $19m (2017: $19m).

The changes in the net deferred income tax assets and liabilities were as follows:

The unrecognised carry forward losses at 31 December 2018 amount to $86m (2017: $77m). $17m will expire at the end of 2021, $17m at the end of 2022, $15m at the end of 2023 and $37m at the end of 2024 or later.

11. Property, plant and equipment

No assets have been pledged as security. Depreciation charge of $60m (2017: $56m) is included in cost of sales for $52m (2017: $49m), in selling and marketing costs for $1m (2017: $1m) and in general and administrative cost for $7m (2017: $6m).

12. Intangible assets