Oil refiner and retailer Viva Energy has been bitten by rising global oil prices.
The company yesterday told the ASX in an update that not only have earnings taken a $35 million because of the sharp rise in oil prices so far this year but that it expects more pain to come.
While Viva said it had seen an improvement in its refining margins for the March quarter, the rise in oil prices and the weaker Australian dollar had cut earnings from its service stations.
“Challenging trading conditions in 2019, predominantly due to sharp increases in the oil price, have impacted fuel margins,” the company said in a statement to the ASX on Monday.
“This has negatively impacted Viva Energy retail segment’s underlying earnings in the range of $30 million to $35 million through to the end of April 2019.”
The report saw Viva’s shares fall 5.5% before they rebounded to be down 3.3% at $2.28.
Viva said it expected continued weaker retail margins to the end of the financial year, in June 2019, as oil price volatility continues.
“Variability in retail margins is a typical feature of the retail fuel market, influenced by the competitive pricing cycle in major markets as oil prices and foreign exchange rates rise and fall,” the company said.
However, the company remained optimistic around its performance for the second half of the year.
“Despite the current challenging trading conditions, Viva Energy is in the initial stages of implementing strategies to improve retail price competitiveness and remains focused on lifting sales volumes through the Alliance network [with Coles Express],” Viva said.
Coles and Viva ended months of talks earlier this year to extend their agreement to 2029.
Viva recently took back control of petrol pricing from Coles Express. Coles had maintained high bowser prices which had seen it deserted by customers.
The Australian Competition and Consumer Commission is looking at Viva’s hold on the petrol retail sector.
The ACCC is specifically looking at whether Viva’s proposed acquisition of the half of fuel retailer Liberty Oil it doesn’t own could drive up petrol prices by dominating the market.
Viva originally bought a non-controlling stake in Liberty five years ago for an undisclosed amount and now wants to buy the rest and transfer the retail assets to a new company which will be 50% owned by Viva.
That deal if approved, will bring the total number of Viva’s retail sites to 1255 petrol stations and made it the largest single fuel retailer in the country ahead of Caltex and BP.
Closing date for submissions to the ACCC is Thursday week, May 9 and the provisional announcement timetable has June 27 penciled in for a decision from the Commission, but that could change.
Extracted from Share Cafe