The hit from COVID-19 on refining has taken a chunk out of Viva Energy’s first-half profits, with the petrol and diesel supplier warning the future of its loss-making Geelong plant is far from secure.
The refinery in Victoria slumped to a loss of $49.4 million in the June half, dragging Viva’s net profit excluding one-time items down 32.6 per cent from the first half last year to $34.3 million.
Chief executive Scott Wyatt said the losses were “unsustainable” and gave a bleak outlook for refining margins in Asia amid the drop in demand for transport fuels due to the pandemic and new capacity continuing to come online despite the weak market.
Australia’s struggling refiners are looking to the federal government’s strategic oil reserves initiative to try to lock in an extra revenue stream, while a broader review of the sector is also under way in Canberra, which is keen to preserve critical domestic manufacturing.
“Viva Energy is working closely with government, and believes that there is the potential to improve the long-term sustainability of the refining business,” Mr Wyatt said. “However, we acknowledge that these operating losses are unsustainable and we are continually assessing both the short and long-term viability of this part of our business.”
The refining margin for the Geelong plant slumped in the first half to just $US2.90 a barrel, down from $US5.10 a barrel in the June half of 2019, said chief financial officer Jevan Bouzo.
Viva, which owns the former Shell refinery and petrol station network in Australia, still offered some cheer to investors with news of a $530 million special dividend, funded from the remaining proceeds from its sale earlier this year of its interest in a property spin-off, which had been delayed by the pandemic.
Profits from the non-refining part of the business, which includes fuels and convenience retailing, rose 14.2 per cent to $318.7 million. The loss from refining compared with an $18.4 million profit for the first half of 2019 and came despite action taken to close some production units and bring forward a maintenance shutdown.
Viva said retail fuel margins were “significantly improved” in the half compared with a year earlier, offsetting the impact of lower sales volumes to both the retail and commercial sectors.
Total sales volumes were down 10.5 per cent on the first half of 2019, with sales of jet fuel slumping by as much as 75 per cent as borders were closed. Sales in the alliance with Coles were down to 40 million litres a week at the peak of the stay-at-home restrictions, but had recovered to 53 million litres a week by the end of June, noted chief executive Scott Wyatt.
Shares in Viva, which declared an interim dividend of 0.8¢ per share, were down 1¢ at $1.80 shortly before the close.
Viva has been making plans to revitalise its Geelong refinery site and convert it into a hub for lower-carbon energy supply, starting with natural gas.
The return of capital to shareholders will include a $415.1 million capital return and an unfranked special dividend of about $114.9 million. The existing on-market share buyback program targeting initially up to $50 million is to be continued after the special dividend.
Viva said it would return the rest of the proceeds from the REIT sale – of about $100 million – to shareholders under a final part of the capital management initiative, which had yet to be determined.
Extracted from AFR