Shell fuel refiner and retailer Viva Energy (ASX:VEA) has reported a rise in half-year profit, driven by strong earnings from its refining business. This gain offset a slowdown in fuel sales volumes and a significantly higher interest and finance bill resulting from the takeover of a major Adelaide-based convenience and fuel retailer.
Viva owns the former Shell refinery near Geelong in Victoria and operates under the Shell name and outlets nationwide. It recently acquired the OTR Group for just over $1 billion.
On Monday, Viva informed the ASX that it earned a net profit of $192.1 million for the six months ending June, surpassing analyst estimates of $177.7 million and marking an increase of more than 10% compared to the first half of 2023.
The company reported a 13% rise in revenue to $14.38 billion, with underlying group earnings jumping 24.8% to $451.7 million.
Viva will pay an interim dividend of 6.7 cents per share, down from 8.5 cents a year ago.
The company attributed most of its profit growth to stronger refining earnings, as its Geelong refinery returned to normal operations after extensive maintenance work. This helped offset a slight dip in retail fuel volumes and convenience sales, particularly lower tobacco sales. Fuel sales in its commercial and industrial sectors, such as jet fuel, were higher.
CEO Scott Wyatt stated that the results demonstrate resilience despite cost-of-living pressures and the illegal tobacco trade affecting consumer demand in the convenience sector. He noted that wage and cost inflation are driving up expenses. Wyatt expects the consumer market to remain challenging for the rest of 2024 but emphasised that Viva will prioritise cost and earnings improvements over the next 18 months.
Viva plans to reduce its investment spend for 2024 by around 10%, allocating $500 million across the remainder of this year and into 2025.
The company took on substantial debt to acquire the Adelaide convenience chain OTR for $1.02 billion. This acquisition led to a new debt package of $1 billion, increasing total debt to over $1.45 billion, compared to $380 million as of June 30, 2023.
The additional interest costs from this higher debt have prompted the company to curb cash outlays by reducing the dividend and effectively spreading investment spending over 18 months.
The OTR acquisition caused net finance costs to more than double to $64 million for the half-year, up from $29.5 million in the first half of the previous year. This increase will impact the company’s results and balance sheet for some time. Adding back $8.3 million in interest received, the gross financing costs were a high $72 million for the half-year.
"The $35.8 million increase in net finance costs period on period has been driven largely by higher borrowings in the current period compared to 1H2023, with additional working capital requirements and new term debt used to acquire the OTR Group,” the directors explained.
