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Key Points
- Viva Energy announced a 3.0% year-on-year increase in total group sales volumes, reaching 4.2 billion litres for the third quarter of 2024.
- The company forecasts Convenience & Mobility (C&M) EBITDA (RC) for FY2024 to range between $230 million and $260 million, influenced by softer retail conditions and declining tobacco sales.
- The company is set to achieve over $90 million in annual cost reductions starting FY2025 through the transition of fuel supply and the integration of Express and On-The-Run (OTR) businesses.
Viva Energy Group Limited (ASX:VEA) has provided an operating update for the three months ending September 30, 2024 (3Q2024), highlighting several key achievements and a cautious outlook for the remainder of the fiscal year. Total group sales volumes reached 4.2 billion litres, reflecting a 3.0% increase compared to the same quarter last year.
In the Commercial & Industrial (C&I) segment, sales grew by 3.7%, buoyed by contributions from the Defence, Aviation, and Liberty Rural Group sectors. The Convenience & Mobility (C&M) business experienced a more modest growth rate of 1.4% in fuel sales, attributed to network expansion and improved trading conditions.
Despite these gains, same-store sales for convenience and quick-service restaurants (QSRs), excluding tobacco products, remained consistent with the previous year. However, overall same-store convenience sales, which include tobacco, saw a 7% decline, albeit offset by improved margins that rose by 2.5 percentage points. This trend underscores the ongoing challenges posed by declining tobacco sales, a significant contributor to overall revenue.
The company faced a tough refining environment during the quarter; nevertheless, the Geelong Refining Margin (GRM) stood at US$6.4 per barrel, supported by a crude intake of 10.1 million barrels. Viva Energy anticipates receiving approximately A$24 million from the Federal Government’s Fuel Security Services Payment (FSSP), which is expected to bolster the GRM by US$1.5 per barrel, helping the company surpass EBITDA (RC) breakeven levels.
During the quarter, the Geelong Strategic Storage Facility was successfully commissioned, enhancing the company's total storage capacity by 90 million litres. This strategic move aims to meet minimum stockholding obligations and improve import capabilities. Additionally, the new bitumen export line has commenced operations, marking the successful delivery of locally produced bitumen from Geelong to Sydney.
Looking ahead, Viva Energy has adjusted its guidance for C&M EBITDA (RC) for FY2024 to between $230 million and $260 million. This projection reflects softer retail conditions, a decline in tobacco sales, and rising overhead costs, particularly impacting the On-The-Run (OTR) business in South Australia due to illicit tobacco sales.
Viva Energy is set to complete the transition of fuel supply by the end of the first quarter of 2025, with the cessation of transitional services from Coles Group expected in the second quarter of 2025. The early identification of convenience purchasing benefits, coupled with the broader integration of the Express and OTR segments, is anticipated to deliver significant cost reductions and earnings improvements. The company now expects to achieve over $90 million in annual savings over the next three years, an increase from the previously estimated $60 million.
The conversion of Express stores to the OTR format is progressing according to the updated schedule provided in August 2024, aiming to support stronger sales growth as retail conditions are projected to improve in FY2025. While the refining environment may continue to pose challenges through the end of FY2024, maintenance and runcuts could rebalance global refining capacity and support margin improvements.
