Bump in earnings for Viva despite bowser wowser

Company News

by Glenn Dyer

The high petrol and diesel prices seem to be having a mixed impact on Viva Energy (ASX:VEA), the refiner and Shell brand retailer in Australia.

The company said on Tuesday it is now looking at a 140% surge in first half pre-tax earnings to more than $600 million thanks to higher refining margins, and higher diesel prices and sales.

But not petrol sales which were “negatively impacted”, the company said by “the effect of rising product costs on retail margins.”

In other words, those petrol prices above $2 a litre since the Russian invasion of Ukraine in late February have seen consumers cut their petrol purchases to the point where Viva saw sales volumes take a hit.

Viva released a brief second quarter and first half update on Tuesday.

Viva reported total group sales volumes growth of 5.2% on the first six months of 2021.

This was driven predominantly by strong diesel sales, which Viva said exceeded pre-pandemic levels.

Viva’s share price was up 2.5% to $2.81 at the close.

Viva said in the update that retail sales volumes were impacted by reduced mobility, higher pump prices (driven by high product costs), and adverse weather events in New South Wales and Queensland but “total sales volumes were up on prior year supported by continued growth in our regionally-focused Liberty Convenience and Dealer Owned channels.”

“Strong global demand for refined products, especially diesel, coupled with tightening supply as a result of refinery closures, reduced exports from China and the broader impact of sanctions on the purchase of Russian oil, continued to drive stronger global refining margins through the second quarter.

The company’s Geelong Refinery (near Melbourne) delivered a strong operational performance, producing at near full capacity in first half of 2022.

“Actual Geelong Refining Margin (GRM) achieved in 2Q2022 was $US30.8 a barrel, which is a significant increase on the GRM of US$8.3/BBL reported for the quarter ending March 31,” Viva said in the update.

Unaudited Underlying Group EBITDA for half is expected to be approximately $614 million, an increase of 140% on the same period last year, driven predominantly by a stronger refining performance and continued recovery in commercial segments which were most impacted by the pandemic.

Viva CEO Scott Wyatt said in the update statement: “Viva Energy has delivered an exceptional first half result in the face of ongoing impacts from the pandemic and significant volatility in global energy markets driven by the war in Ukraine.

“I am pleased with the way we have maintained reliable supply during a period of significant disruption to traditional supply chains, and to see some robust recovery in segments which were most impacted by the pandemic.

“After a period of significant losses during the pandemic, it is especially pleasing to see our refining business now delivering strong results and playing a key role in meeting the country’s energy security needs.”

But looking to the rest of 2022, Mr Wyatt wasn’t quite as upbeat.

He said that while Viva had delivered a particularly strong performance for June half, “markets remain volatile and uncertain, with higher energy and operating costs, rising crude and product premia, and increases in fuel excise providing potential headwinds.”

“We look forward to providing a further update on trading conditions when we release our half year results later in August 2022.”

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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