Oil refiner Viva Energy has issued its third profit warning in the space of five months, advising of a hit to its retail earnings of up to $35 million in the first four months of the year due to squeezed margins on sales of petrol and diesel.

Viva said trading conditions this year have been “challenging” due to recent sharp increases in the oil price, which have put pressure on retail fuel margins.

As a result, underlying earnings before interest, tax, depreciation and amortisation for Viva’s retail business have been reduced by $30 million to $35 million in the January-April period compared with expectations.

“Variability in retail margins is a typical feature of the retail fuel market, influenced by the competitive pricing cycle in major markets along with short-term compression and expansion of margins as oil prices and foreign exchange rates rise and fall,” Viva said.

Shares in Viva, which were sold at $2.50 apiece in the country’s biggest IPO last year, were down 3.8 per cent at $2.27 at 10:29am AEST.

The company, which owns the former Shell refinery in Geelong and its petrol station network, has also been under pressure on refining margins, but they improved in March, to $US6.50 a barrel. That compares with $US3.90 a barrel in February, leaving the refinery marginal in terms of breakeven.

Viva said that despite the difficulties on retail margins it is in the initial stages of implementing strategies to improve the competitiveness of its retail prices and remains focused on lifting sales volumes through its alliance network with Coles.

That fuel distribution and retail alliance with Coles was renegotiated in February, with the expectation the new arrangements will improve the competitiveness of pricing of fuels on the forecourt and reverse declining profits at of the business.

“Viva Energy remains excited by the opportunity and together with Coles Express is committed to establishing the Alliance as Australia’s leading fuel and convenience retail network,” it said.

Viva advised that the actual earnings for its retail business for the first half of June would be subject to the impact of the lower margins, and market conditions seen in May and June.

Extracted from AFR

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