Refining fuels Viva Energy’s earnings lift
Viva Energy posted a 10 per cent profit increase as its refinery business fuelled a rally in earnings, offsetting weakness in its retail and traditional petrol station arm.
Viva Energy has posted a 10 per cent increase in half-year net profits as its refinery business, which appeared just a few years ago to be on course to be shut, fuelled a rally in earnings, offsetting weakness from the company’s retail and traditional petrol station business.
The result exceeded market expectations, sending shares up slightly and underscoring the importance of the refinery business.
Viva’s net profit for the six months totalled $192.1m, up on the $174.1m reported during the same period one year earlier.
The result was powered by the performance of its refinery business, which reported half-year revenue growth of 390 per cent. Revenues for the six months ended June 30 totalled $112.4m, up on the $22.9m reported one year prior.
The refinery result offset a fall in petrol sales of 0.9 per cent, Viva said. The company also reported 1.4 per cent decline in sales across its convenience business.
Viva said it would pay a dividend of 6.7c a share, a fall of 21 per cent from the previous year.
It said dividends were at the top end of its payout range and represented a 70 per cent payout from its petrol station business and 56 per cent from its commercial and industrial business.
Chief executive Scott Wyatt said the result was pleasing in the context of a cost-of-living squeeze.
“Cost-of-living pressures and illegal tobacco trade are having an impact on consumer demand within our convenience businesses, at the same time that wage and cost inflation are driving up the cost of doing business across all our business units,” he said.
“In this context, our financial results for the first half demonstrate significant resilience and the benefits that come from diversity within our businesses.
“Continued strength in our commercial businesses and strong production performance at our Geelong refinery were key drivers of earnings growth.”
The Viva result comes just weeks after rival Ampol posted strong financial gains, though it was hampered by unplanned outages at its refinery business.
Viva and Ampol are grappling with the rapidly changing petrol market, with both trying to bolster retail and convenience offerings.
Viva hopes that with a broad retail offering, complete with takeaway coffee and restaurants, it will persuade customers to shop or eat while they recharge electric vehicles.
Viva last year completed its $1.215bn acquisition of OTR Group, the centrepiece of its strategy to prepare for the energy transition that threatens to uproot Australia’s traditional fuel business. OTR generates more than 70 per cent of its earnings from non-fuel retailing, luring customers with products such as barista-made coffee and dog-wash facilities.
Mr Wyatt said the company was pressing ahead with refitting its Coles Express stores to run under the On the Run brand, with higher-end convenience offerings designed to lure consumers.
The reshaping of Viva is expected to cost more than $50m a year to complete.
Mr Wyatt said, however, that the OTR acquisition would from 2025 deliver sizeable cost saving synergies.
While Viva is broadening its appeal, it maintains a strong focus on fossil fuels and is hoping to profit from a looming east coast gas shortfall.
Viva is pushing ahead with plans to develop an LNG import terminal at Geelong, but the plans were hindered when the Victorian Labor government led by then premier Daniel Andrews asked for more environmental studies.
Viva has begun to submit revised environmental studies for the project.
If Viva secures support from the Victorian government, it could emerge as a viable solution to a looming eastern seaboard gas shortfall.
The traditional source of gas supplies to the country’s east coast is rapidly being depleted.
Supplies from the Longford facility could be exhausted by 2028, leaving Victoria, the most gas-dependent state, facing an economic and social catastrophe.
Viva had proposed extending a pier at the site of the Geelong refinery to which it could moor a vessel capable of receiving LNG exports.
Those in turn could be used to supply Victorian homes and businesses during peak demand periods.
