Viva Energy has posted record half-year earnings as the global energy crunch boosted the company’s revenue from refining eightfold, capping a remarkable turnaround for a business that appeared on the brink just over a year ago.
Viva said earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months ending June 30 was a record $611.7 million, a rise of 139 per cent on the same period a year earlier. Net profit was $127 million, up 27 per cent from a year ago when the retail business weighed on earnings.
The biggest driver of Viva’s earnings was its refining business, which posted a year-on-year increase in pre-tax earnings of 747 per cent to $370.8 million. In the same period in 2021, Viva reported EBITDA from the division of $43.8 million.
“We are very pleased. It has been a pretty extraordinary period as the world recovers from the pandemic and increased oil demand at the same time we have been dealing with the consequences of the war in Ukraine,” Viva Energy chief executive Scott Wyatt told The Australian Financial Review.
“It has been a pretty tight energy market and to navigate that as we have is really pleasing.
“The highlights for me is the performance of the refinery. We have been through some challenging times in the last few years, but we always had confidence in the refinery business. I think that confidence has proved to be founded over the last six months.
“Having local refining capacity at a time when local supply chains have been so heavily disrupted has been good not only for the company, but for Australia.”
Viva says it will pay shareholders a dividend of 13.7¢ a share. The refining component of the dividend will be paid earlier than expected, which Mr Wyatt said was a recognition of the strong performance of the business, and the expectation refining margins would continue to be favourable for Viva.
Shares in Viva Energy rose 2.5 per cent by lunchtime but eased to close down 0.18 per cent at $2.78.
While lauding its results, Viva warned its outlook was volatile as refining margins have softened in recent months and it contends with an unplanned outage of a catalytic cracking unit.
Viva said market fundamentals remained tight due to Russian sanctions, constraints on Chinese exports, reduced capacity due to refinery closures and low inventories ahead of winter in the northern hemisphere, and the company was well-placed to capitalise.
“It is more likely than not that those margins will remain strong throughout the rest of the year. A lot can change and the market is volatile but fundamentally that is what we see,” Mr Wyatt said.
The earnings update caps a remarkable turnaround for Viva. The company’s future was only secured last May when the federal government said it would pay Ampol and Viva Energy to keep producing amid heightened fears about Australia’s energy security as they struggled against larger Asian refineries and COVID-19 lockdowns.
Australia’s refining capacity has been falling for more than a decade and the pandemic worsened the situation. It severely reduced the demand for jet fuel, cut the use of petrol and diesel, while driving down refining margins.
The scheme pays both Ampol and Viva Energy when refining margins are weak, and the subsidies aided both in the short term before a rapid turnaround in the market made both ineligible.
Such was the turnaround that Viva Energy in February said its net profit for the 2021 financial year rose to $191.6 million, up from the $33.4 million the company reported one year earlier. The results were the largest since the company’s 2018 float.
Extracted from AFR