Recently listed fuels supplier Viva Energy has again downgraded its profit guidance for 2018, citing weakness in Asian refining margins, as warned that profit from refining this first half of 2019 may also miss prospectus forecasts.Underlying earnings before interest, tax, depreciation and amortisation for the year ended December 31 in the refining business are now expected to be about $125 million, compared to the November guidance of $150 million, Viva said on Friday.

The warning confirms worries in the market about declining profits in Viva’s refining operations at Geelong, where estimated EBITDA for 2018 had already been slashed from the $216.7 million given in the prospectus.

Viva raised $2.65 billion in an initial share offer in what was the country’s biggest IPO of the year but the stock has disappointed investors, sinking well below its $2.50 issue price. The shares sank as much as 5.2 per cent to $1.72 in early trading

Viva’s Geelong refining margin (GRM) was just $US3.3 a barrel in December, bringing the average margin for the last two months of the year to $US5.2 a barrel. That compares with Viva’s revised estimate in November of $US8 a barrel for November and December. Lower fuel volumes sold through Viva’s retail partner Coles were also a factor in November’s profit downgrade.The weakness in margins also signals that the prospectus estimate for margins for the first half will also be too optimistic. The prospectus assumed a refining margin for the first half of 2019 of $US9.7 a barrel, almost three times the average margin for December.

“Refining margins have continued to perform below the prospectus forecast in the month of January 2019 to date and if these conditions were to persist the prospectus forecast for 1H 2019 GRM of $US9.5/bbl would not be achieved,” it advised.

Each $US1 a barrel shift in the refining margin shifts Ebitda by $29 million and net profit by $20.3 million, before taking into account foreign exchange.

Extracted from AFR