Newly listed fuel business Viva Energy aims to better compete against cheaper petrol chains by buying the remaining half of its joint venture Liberty Oil’s wholesale oil business, taking control of Coles Express fuel and signing a fuel discount deal with Carsales.
“We want to bring more competition to the market,” Viva Energy chief executive Scott Wyatt said on the back of the company’s first results since its ASX listing in 2018.
“One area we have fallen short on is price competitiveness, our intent is to be more competitive with our network.”
Viva beat analyst expectations as it recorded a net profit of $579.6 million in the six months since it listed on the ASX, above its recent guidance and more than a quarter above its forecasts in the share sale documents.
The newly acquired Liberty Oil wholesale oil business now gives Viva control of 17 regional fuel storage depots, a fleet of more than 50 vehicles and supply to more than 250 dealer-owned service stations.
It will operate the existing Liberty Oil service stations in a joint venture with Liberty Oil founders David Goldberger and David Weiland, helping to expand their retail footprint.
Mr Goldberger said the focus is “on getting bigger and better”.
Viva originally bought a non-controlling stake in Liberty in 2014 for an undisclosed amount.
The deal brings the total number of Viva’s retail sites to 1255 petrol stations, making it the largest single fuel retailer in the country.
However, Mr Wyatt said these petrol stations would not be rolled into the Coles Express group.
“We see Liberty [and other jointly-owned petrol station chain] Westside as complementary to Coles,” he said.
He said there is also the opportunity to open more service stations “as we now have more confidence in our network.”
Viva will officially take control of fuel pump pricing from Coles Express – which the Australian Competition and Consumer Commission said had the highest retail petrol prices in the country – at the end of this week. Mr Wyatt said the group aims to reach a fuel sales volume of 75 million litres a week.
It comes after renegotiating the alliance between the two companies to extend their petrol station partnership out to 2029.
Petrol prices hit record highs last year, rising to nearly $1.70 in Sydney and Melbourne.
“We will now be able to improve the competitiveness of pricing for our customers,” Mr Wyatt said.
Petrol analyst Fueltrac chief executive Geoff Trotter said Viva’s sales volumes had dropped significantly and it would be difficult to regain its lost market share.
“It’s going to have to do something drastic to regain customers,” Mr Trotter said.
“They have been 9¢ to 10¢ above average prices, they can’t just drop it to BP’s prices, they’re going to have to compete with the United and Pumas, compete with the lowest cost retailers, if they are serious.”
Viva has also announced a collaboration with online vehicle and marine classifieds business Carsales.com.au, providing fuel discounts to Carsales members.
“Today’s announcement reinforces our commitment to build strategic partnerships. We see fuel discounts as just the start of this new collaboration and we look forward to rolling out further offers in the future,” Viva Energy chief executive Scott Wyatt said.
The partnership is due to begin in the second half of the year.
While Viva beat market expectations, it took a massive hit on its refining earnings, which came in at $124.5 million – 42.5 per cent or $92.2 million below the forecast in its share listing prospectus, although broadly in line with its more recent guidance.
Viva said this was “due to significant weakness in regional refining margins in the later part of the year and a number of external events that impacted operational availability”.
Deutsche Bank analysts said the weak refining performance was expected.
Rival refiner Caltex also saw lower refining margins as it faced similar tougher global conditions.
UBS analysts said outside of poor refining performance, Viva beat expectations.
“This is a good result overall with Viva exceeding prospectus in controllable areas, excluding refining. We would expect this result to be viewed positively, albeit still no sign of refiner margins normalising, with our expectations of this to happen in the second half of 2019,” UBS analysts said.
The company said excluding refining performance, it was ahead of its prospectus underlying earnings by $16 million.
Viva has issued an inaugural, fully franked dividend of 4.8 cents for the second half of 2018, payable 15 April. This represents a payout ratio of 60 per cent of its net profit.
Viva’s largest shareholder is its parent company, the Anglo-Dutch oil conglomerate Vitol.
Viva shares closed 1.8 per cent lower at $2.40 on Wednesday in Sydney.
Extracted from The Sydney Morning Herald