Viva Energy Navigates Refining Volatility While Advancing Convenience Strategy

About Viva Energy Group Limited

Viva Energy Group Limited (ASX: VEA) is one of Australia’s leading fuel, convenience and energy infrastructure companies, with a history spanning more than 120 years. The Group operates a national convenience and fuel retail network of more than 900 sites under brands including Shell, OTR and Liberty, and supplies fuels and lubricants to nearly 1,500 service stations across the country. In addition, Viva Energy owns and operates the strategically important Geelong Refinery in Victoria and maintains a broad commercial presence across aviation, marine, bulk fuels, chemicals, bitumen and lubricants.

As Australia’s downstream energy market continues to evolve amid cost-of-living pressures, regulatory change and the energy transition, Viva Energy remains focused on balancing near-term operational performance with long-term strategic investment. The company’s latest quarterly update highlights this balancing act, with steady fuel demand, improving convenience margins and a strong refining contribution, partially offset by softer retail trading conditions and ongoing structural pressures in the tobacco category.

Fuel Volumes and Network Performance

Total Group sales volumes increased 1.1 per cent compared with the same period last year, reflecting resilience across Viva Energy’s diversified fuel portfolio. Growth in Commercial & Industrial fuel volumes was a standout, rising 3.7 per cent in the quarter, underpinned by a strong performance in Aviation. Increased air travel demand continued to support aviation fuel volumes, reinforcing the importance of this segment as a stable earnings contributor.

This growth offset softer conditions in the Marine segment, where demand remained more subdued. Within Convenience & Mobility, reported fuel volumes declined by 4.5 per cent year-on-year, reflecting temporary trading interruptions associated with store conversions and the divestment of 15 Liberty Convenience sites required under acquisition commitments. When adjusted for these impacts, convenience fuel volumes were down a more modest 1.5 per cent, indicating broadly stable underlying demand.

At the end of December 2025, Viva Energy’s core fuel and convenience network comprised 985 sites, including 643 Express sites, 247 OTR sites and 95 Liberty Convenience locations. While the total site count was slightly lower than the prior year due to divestments, the continued expansion of the OTR format remains central to the Group’s strategy.

Convenience Retail: Margin Improvement Amid Sales Pressure

Convenience sales declined 11.4 per cent year-on-year in the quarter, driven primarily by a 33.6 per cent fall in tobacco sales. Management again highlighted the ongoing impact of illicit tobacco trade on the sector, which has materially reduced legitimate tobacco volumes across Australia. Encouragingly, tobacco sales were stable during the second half of FY2025, suggesting the rate of decline may be moderating.

Despite lower sales, gross margin on total convenience improved meaningfully, rising 4.5 per cent to 42.2 per cent. This reflects improved product mix, disciplined pricing and stronger performance in higher-margin non-tobacco categories. Convenience sales excluding tobacco were down only 1.3 per cent, largely due to trading interruptions from store conversions, and were broadly flat on a like-for-like basis. Notably, OTR format stores delivered like-for-like growth of 1.9 per cent, reinforcing confidence in the premium convenience model.

During FY2025, Viva Energy opened 35 OTR stores through a mix of new builds, rebuilds and conversions, with a further five Liberty sites converted in the fourth quarter. These investments are designed to lift long-term returns through higher-margin foodservice and convenience offerings.

Refining Performance and Operational Execution

The Geelong Refinery delivered a solid operational result during the quarter, processing 9.4 million barrels of intake and generating a gross refining margin of US$12.1 per barrel. Production was impacted by planned major maintenance, including restart work on the Residual Catalytic Cracking Unit, commissioning of the Ultra Low Sulphur Gasoline plant, and power disruptions.

Importantly, the Ultra Low Sulphur Gasoline project was delivered on time and ahead of the new Australian fuel standard that came into effect on 15 December 2025. This investment underscores Viva Energy’s commitment to maintaining domestic refining capability while meeting increasingly stringent fuel specifications.

While quarterly refining intake was slightly lower year-on-year due to maintenance, the strong margin outcome highlights the refinery’s leverage to favourable refining conditions and effective execution during a complex operational period.

Balance Sheet and Liquidity Strength

During 4Q2025, Viva Energy successfully refinanced and increased its revolving credit facility to US$1.3 billion from US$1.2 billion. The Group remains in full compliance with its debt covenants and retains sufficient liquidity headroom to support operations and ongoing investment.

The refinancing improves financial flexibility at a time when capital discipline remains critical across energy and retail sectors. Management continues to emphasise balance sheet resilience as a key priority, particularly given the cyclical nature of refining earnings and the capital requirements associated with convenience network transformation.

Strategic Context and Industry Dynamics

Viva Energy operates at the intersection of several structural forces shaping Australia’s energy and retail landscape. Fuel demand remains relatively resilient, supported by population growth and travel activity, while convenience retail is increasingly driven by margin quality rather than pure volume growth. At the same time, domestic refining capacity has strategic importance, particularly as global supply chains face geopolitical and logistical risks.

The Group’s ongoing shift toward higher-quality convenience formats such as OTR reflects a broader industry trend toward foodservice-led growth, as traditional fuel retail margins remain competitive. However, illicit tobacco trade continues to weigh on legitimate retailers, representing a structural challenge that is unlikely to resolve in the near term without further regulatory intervention.

Outlook

Looking ahead, Viva Energy is expected to benefit from continued strength in aviation fuel demand, improving contribution from OTR stores and disciplined cost management across its network. Refining earnings are likely to remain volatile quarter to quarter, but investments in reliability and compliance support the long-term role of the Geelong Refinery within Australia’s energy system.

While retail sales headwinds persist in some categories, improving margins and store conversions are expected to underpin gradual earnings resilience. The Group’s strong liquidity position provides flexibility to navigate near-term challenges while continuing to invest for long-term growth.