Viva Energy’s annual net profit missed its prospectus forecasts by nearly 10 per cent as weaker-than-expected Asian refining margins hit returns at its Geelong plant.

Underlying profit after tax was $293 million, marking a 9.6 per cent fall on its $324m estimate outlined in the prospectus issued before its $2.65 billion initial public offering last year.

Weaker demand hit its refining unit, with underlying earnings before interest, tax, depreciation and amortisation slumping 55 per cent year on year to $124.5m.

It blamed higher oil prices in the second half of 2018 which depressed regional demand, but does not expect such volatility to continue throughout the year.

However, investors had been primed on the weak refinery performance after an earnings downgrade last month, limiting the fallout, while earnings for Viva’s other divisions were largely in line with analyst forecasts. Viva shares shed 1.25 per cent to $2.37 yesterday, compared with their $2.50 listing price last year.

“A good result overall with Viva exceeding prospectus in controllable areas excluding refining,” UBS said in a note to clients.

The results should “be viewed positively, albeit there is still no sign of refiner margins normalising, with UBS expecting this to happen in the second half of 2019”, the note said.

Group underlying EBITDA also came in lower than prospectus forecasts by 12 per cent, at $528.9m compared with its $605.1m estimate.

“From a financial perspective, 2018 was a challenging year with the group’s expected financial performance negatively impacted by significantly weaker than expected regional refining margins and a number of external events affecting Geelong refinery production,” chief executive Scott Wyatt said.

The company also agreed to take a full stake in Liberty Oil’s wholesale business for $42m in what it said would be a significant step in its regional growth strategy. Viva will acquire the remaining 50 per cent stake it does not own and establish a new retail joint venture to grow the existing Liberty Oil retail business, of which it will own 50 per cent.

It follows a move by the supplier and retailer earlier this month to rework a decade-long deal with supermarket giant Coles, giving it control over setting fuel prices.

Viva hopes the move will allow it to resurrect the underperforming petrol unit, which has suffered from high pump prices trimming sales and eroding its market share.

Viva’s assets include the Geelong refinery, one of only four in Australia, and a network of more than 20 fuel-import terminals through which it supplies a quarter of the nation’s refined fuel needs. It supplies fuel to 50 airports around Australia and also operates 1100 petrol stations throughout the country.

Extracted from The Australian