The Viva Energy Ltd (ASX: VEA) share price is on watch this morning after the Aussie oil and gas group announced underlying earnings in-line with guidance.
What did Viva Energy announce?
For the half-year ended 30 June 2019, Viva Energy reported underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $283.3 million, within its $275 million to $290 million guidance range.
A change in accounting standards dampened the statutory results, with its $78.0 million underlying net profit after tax (NPAT) under the old AASB 117 standards falling to $50.9 million under AASB 16.
The company's lease liability also ballooned from $50.9 million to $2,393.2 million under the new standard which requires companies to take their operating leases onto their balance sheet.
Total volumes cam in at 7,126 million litres, up 2.5% on 1H 2018 volumes of 6,955 million litres, even while total market volumes fell 2.2% on 1H 2018.
Viva also renegotiated its retail Alliance partnership with Coles Express during the half-year, with the Aussie energy group taking full control of retail fuel pump pricing from 1 March 2019 onwards.
However, Viva also cited lower retail market fuel margins from rising oil costs as a key factor behind its lower margins, despite strong sales results throughout the year.
The Aussie oil and gas group also said higher shipping costs and margin compression on its various contract renewals during the period put pressure on its Commercial segment earnings for FY19.
Viva's Refining segment reported 1H 2019 underlying EBITDA of $18 million, compared to full-year EBITDA of $125 million in FY18.
Refining margin compression and weaker regional markets was a big drag on earnings, particularly at the company's Geelong refinery.
Foolish takeaway
Despite the Viva Energy result being made more complicated by the accounting changes, I still think the underlying result was relatively soft.
However, much of the weaker earnings were driven by macro factors such as the rising cost of oil rather than idiosyncrasies within Viva Energy, which should be of some consolation to investors.
The company bringing its lease obligations on-balance sheet has significantly lowered its underlying earnings per share, but other than the accounting, the foundations remain the same.
Given the softer result, I'd be waiting until I see how Viva Energy fares in the next 6 months before making a judgement call when the company releases its full-year results in February.
