Cash-flush Vivo increases dividend ratio

Cash-flush Vivo Energy, which operates the Shell and Engen brands in 23 African countries, will increase dividend payouts to a minimum 50% of net income as it opts to reward shareholders while it waits for acquisition opportunities to emerge.

The company, which owns 2,330 retail sites across Africa but none in SA, saw a strong rebound in business in the second half of 2020, after the pandemic took its toll in the first six months to end-June 2020.

For the full year, the company reported a 7% decline in sales volumes, a 17% drop in revenue and a 40% drop in net income to $90m (R1.3bn). Basic headline earnings per share of 6 US cents were 45% below those of 2019.

Operating profit, measured in terms of earnings before interest, taxes, depreciation and amortisation (ebitda), was 13% lower at $360m.

On Wednesday, Vivo announced it would reinstate a dividend of 3.8 US cents per share. The board also approved a new minimum payout ratio to 50% of attributable net income, compared with 30% previously.

Adjusted free cash flow was lower at $112m in 2020 compared with $325m in 2019. The recent refinancing of a loan facility has, however, freed up about $80m in annual repayments.

CASH FLOWS

“Once we have invested, once we have paid dividends and paid back what we should pay, there is still cash in the company,” said Vivo CEO Christian Chammas.

“Sitting on cash is not the best idea in the world, so we said, ‘Let’s increase our dividend until such time that maybe ... a big [merger or acquisition] comes and maybe we’ll talk about it.’ That is what was recommended and the board accepted it.”

Because Vivo continued investing in new sites and refreshing old ones throughout 2020, Chammas said it was able to grab market share from the competition. “When things normalised, people came back quickly. I think our competitors were dormant and we grabbed the volume that was there. That is why we accelerated our results and our sales in the second half of 2020, especially the last quarter.”

The focus now is on growth that boosts cash flows and supports higher shareholder returns.

“The model is very well tuned. We have put in place a robust organisation with fantastic teams,” said Chammas.

“We roll out projects — whether it be in retail, food or convenience — and within a very short time, and I mean a couple of weeks, they are already generating cash, and that represents 65% of our business. So it is a cash-generating business that we love, and we will continue investing in that direction.”

The Vivo share price ended 0.54% higher at R18.69 on Wednesday after touching R19.21 in intraday trade.