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Financial performance of the Australian downstream petroleum industry 2002 to 2018

April 2020

http://www.accc.gov.au

Australian Competition and Consumer Commission 23 Marcus Clarke Street, Canberra, Australian Capital Territory, 2601

© Commonwealth of Australia 2020

This work is copyright. In addition to any use permitted under the Copyright Act 1968, all material contained within this work is provided under a Creative Commons Attribution 3.0 Australia licence, with the exception of:

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any illustration, diagram, photograph or graphic over which the Australian Competition and Consumer Commission does not hold copyright, but which may be part of or contained within this publication.

The details of the relevant licence conditions are available on the Creative Commons website, as is the full legal code for the CC BY 3.0 AU licence.

Requests and inquiries concerning reproduction and rights should be addressed to the Director, Content and Digital Services, ACCC, GPO Box 3131, Canberra ACT 2601.

Important notice

The information in this publication is for general guidance only. It does not constitute legal or other professional advice, and should not be relied on as a statement of the law in any jurisdiction. Because it is intended only as a general guide, it may contain generalisations. You should obtain professional advice if you have any specific concern.

The ACCC has made every reasonable effort to provide current and accurate information, but it does not make any guarantees regarding the accuracy, currency or completeness of that information.

Parties who wish to re-publish or otherwise use the information in this publication must check this information for currency and accuracy prior to publication. This should be done prior to each publication edition, as ACCC guidance and relevant transitional legislation frequently change. Any queries parties have should be addressed to the Director, Content and Digital Services, ACCC, GPO Box 3131, Canberra ACT 2601.

ACCC 04/20_1678

www.accc.gov.au

http://www.accc.gov.au

iii Financial performance of the Australian downstream petroleum industry 2002 to 2018

ContentsKey messages 1

1. Introduction 151.1 Sectors in the downstream petroleum industry 15

1.2 Reporting categories 16

1.3 Key performance indicators 17

1.4 Aggregate results 18

1.5 Time series 18

1.6 Other issues 18

2. Financial performance of the retail sector 192.1 Retail sector financial data 20

2.2 Retail sector—sales volumes 21

2.3 Retail sector—all products and services—total revenues and costs 22

2.4 Retail sector—all products and services—net profits 23

2.5 Retail sector—fuel and convenience store and non-fuel sales—net profits 25

2.6 Retail sector—all products and services—other performance measures 28

2.7 Retail sector—petrol products—net profits 29

2.8 Regular unleaded petrol net profits and retail operating costs compared with gross indicative retail differences 34

3. Financial performance of the wholesale sector 373.1 Wholesale sector financial data 38

3.2 Wholesale sector—all products—sales volumes 38

3.3 Wholesale sector—all products—total revenues and costs 39

3.4 Wholesale sector—all products—net profits 40

3.5 Wholesale sector—all products—other performance measures 42

3.6 Wholesale sector—petrol products—net profits 43

4. Financial performance of the total supply sector and refining 454.1 Refining in Australia 46

4.2 Refining—all products—volumes produced 47

4.3 Refining—all products—total revenues and costs 48

4.4 Refining—all products—net profits 49

4.5 Refining—all products—other performance measures 51

4.6 Refining—petrol products—net profits 52

4.7 The total supply sector 53

4.8 Total supply sector—all products—sales volumes 54

4.9 Total supply sector—all products—total revenues and costs 55

4.10 Total supply sector—all products—net profits 56

4.11 Total supply sector—petrol products—net profits 59

iv Financial performance of the Australian downstream petroleum industry 2002 to 2018

5. Financial performance of the total downstream petroleum industry 615.1 Downstream industry financial data 62

5.2 Downstream industry—all products and services—total revenues and costs 62

5.3 Downstream industry—all products and services—net profits 63

5.4 Downstream industry—all products and services—other performance measures 65

5.5 Downstream industry—all products and services—net profits by sector 66

5.6 Downstream industry—petrol products—net profits 67

5.7 Downstream industry—petrol products—net profits by sector 69

Appendix A: Data collection and methodological issues 70

1 Financial performance of the Australian downstream petroleum industry 2002 to 2018

Key messages

Monitoring prices, costs and profits in the downstream petroleum industryOn 16 December 2019, the Treasurer issued a new Direction to the ACCC to monitor the prices, costs and profits relating to the supply of petroleum products in the petroleum industry in Australia. As part of the Direction, the ACCC produces industry reports that focus on particular aspects of consumer interest in the fuel market in relation to prices, costs and profits.

This is the first industry report under the new Direction. The focus of this report is to provide transparency around the financial performance and the profitability of the downstream petroleum industry.

The ACCC collects annual financial data from 11 monitored companies that operate across the downstream petroleum industry.1 This report presents results from analysis of this data for each of the following sectors within the industry: retail; wholesale; and total supply (which comprises refining, importing and buy-sell transactions between refiners).2 Results are also presented for all of these sectors in aggregate (the total downstream petroleum industry).

The report includes data from 2002–03 up to 2017–18 (the latest data analysed), after the ACCC previously reported on these financial results to the end of 2013–14.3 This report, however, does not include results for 2014–15 and 2015–16, which was a period when the ACCC conducted other financial analysis of the petroleum industry as part of its regional market study reports.4 All results in this report are in real terms in 2017–18 dollars.

Retail sectorRetail sector net profits have increased over time Revenues and profits in the retail sector are generated from both fuel sales as well as convenience store sales and non-fuel activities. Sales of fuels include petrol products (i.e. regular unleaded petrol (RULP), premium unleaded petrol (PULP) and ethanol blended petrol (EBP)) as well as diesel and automotive liquefied petroleum gas (LPG) sales.5

Sales of convenience store and non-fuel products have been a growing part of many petrol retailer’s operations to attract and provide consumers with a variety of goods and services. Some of these services include franchised businesses within the convenience store, food and beverage offerings, car and animal wash facilities, and other traditional services such as the hire of trailers, gas bottle exchange and ATM services.

The sector has undergone significant change, and continues to do so. As well as growth in convenience offerings, some retailers have expanded their retail site networks as the total number of retail sites in

1 These are BP, Caltex, Mobil, Viva Energy, Liberty, Puma Energy, United, Coles Express, Woolworths, 7-Eleven and On the Run.

2 Buy-sell arrangements are bilateral arrangements between one refiner-wholesaler to supply another with refined product where they do not have a refinery. For example, a refiner which does not have a refinery in Victoria can supply refined petrol in that state by having a buy-sell agreement with one of the Victorian refineries.

3 ACCC, Monitoring of the Australian petroleum industry 2014—Report of the ACCC into the prices, costs and profits of unleaded petrol in Australia, December 2014, Chapters 11 and 12, at: https://www.accc.gov.au/publications/annual-monitoring-of-the-australian-petroleum-industry/monitoring-of-the-australian-petroleum-industry-2014-report. This is subsequently referred to as the ‘2014 report’.

4 The ACCC’s regional market study reports are available at: https://www.accc.gov.au/publications/petrol-market-studies.

5 EBP is RULP with ethanol blended in, the most common form of which is E10 (i.e. RULP with up to 10 per cent ethanol).

https://www.accc.gov.au/publications/annual-monitoring-of-the-australian-petroleum-industry/monitoring-of-the-australian-petroleum-industry-2014-reporthttps://www.accc.gov.au/publications/annual-monitoring-of-the-australian-petroleum-industry/monitoring-of-the-australian-petroleum-industry-2014-reporthttps://www.accc.gov.au/publications/petrol-market-studies


Australia has increased. At 30 June 2018, there were around 7300 retail fuel sites in Australia, compared with around 6700 at the end of 2013–14.6

For all fuel, convenience store and non-fuel sales, total retail net profits were $616 million in 2017–18.7 They have been generally increasing over time, and in 2017–18 they were slightly lower than their peak in 2016–17 ($682 million).

Retail sector net profits on all products and services: 2005–06 to 2017–188

$ m

illio

n (r

eal t

erm

s)

Avg: 2005–06to 2007–08

2016–17 and 2017–18

2008–09 to2013–14

100

200

300

400

500

600

700

800

2006

–07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

2012

–13

2013

–14

2014

–15

2015

–16

2016

–17

2017

–18

2005

–06

0

Source: ACCC calculations based on data obtained from monitored companies; and ABS, 6401.0 Consumer Price Index, Australia, June 2018, tables 1 and 2. CPI: All Groups, Index Numbers and Percentage Changes, 25 July 2018.

Notes: Real values in 2017–18 dollars.

Data for 2014–15 and 2015–16 is not included.

In 2017–18 around 63 per cent of total net profits in the retail sector ($390 million) were generated from fuel sales, which equates to average net profits of 2.2 cents per litre (cpl) across all fuels. This compares with average net profits of 1.5 cpl across all fuels in the period 2008–09 to 2013–14.9 Net profits on petrol products, (i.e. RULP, PULP and EBP), were $333 million in 2017–18, which made up over 85 per cent of net profits on all fuels. Net profits on diesel were $52 million in 2017–18.

In 2017–18 convenience store and non-fuel sales contributed around 37 per cent of total retail sector net profits ($226 million), illustrating their importance to petrol retailers’ businesses.

These financial results for the retail sector represent an estimated 70 per cent of retailers in Australia based on petrol sales volumes. It is important to note that the results are presented at an aggregate level and will not reflect the financial performance of any one particular company. Companies operating in the industry have a variety of business models and ownership structures as well as different capital structures and cost bases that can affect their profitability.

6 ACCC analysis of the Informed Sources Netwatch database.

7 The main key performance indicator (KPI) used in this report is adjusted earnings before interest and taxes (EBIT), referred to as net profit. This measure is also used to derive net profit on a cents per litre basis. Other KPIs used in this report include return on sales, return on assets, and return on capital employed ratios. These are defined in chapter 1.

8 Most financial data presented for the retail sector covers the period 2005–06 to 2017–18 due to structural changes in the industry and changes in the method of collection.

9 This period is referred to in this report as ‘the period after the Global Financial Crisis (GFC)’. The period before 2007–08 is referred to as ‘the period prior to the GFC’.


Retail net profits on petrol products in 2017–18 were the highest on record Net profits on petrol products (RULP, PULP and EBP) have increased in most years since 2008–09 and in 2017–18 they were the highest on record ($333 million, or 3.0 cpl).10 In cents per litre terms, net profits on petrol products in 2017–18 were almost double the average in the period 2008–09 to 2013–14 (1.6 cpl).

There was a decline in profits on petrol products in 2013–14, which may have been influenced by the change in the way that Coles and Woolworths funded their shopper docket fuel discounts. Prior to 1 January 2014, Coles and Woolworths funded a substantial portion of these discounts from their supermarket businesses. After that date, supermarkets fully funded their shopper docket fuel discount offers from their fuel retailing businesses in accordance with undertakings made by Coles and Woolworths to the ACCC.11

The higher net profits on petrol products in 2016–17 and 2017–18 were significantly influenced by the returns retailers achieved on PULP.

Retail sector net profits per litre on petrol products: 2005–06 to 2017–18

cpl (

real

ter

ms)

Avg: 2005–06to 2007–08

2016–17 and 2017–18

2008–09 to2013–14

2006

–07

2007

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2008

–09

2009

–10

2010

–11

2011

–12

2012

–13

2013

–14

2014

–15

2015

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2016

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2017

–18

2005

–06

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5




Premium unleaded petrol was significantly more profitable than other petrol productsIn 2017–18 net profits on PULP (both PULP 95 and PULP 98) were $199 million, significantly larger than those on other petrol products (RULP and EBP).12 Compared with average net profits over the period 2009–10 to 2013–14, in 2017–18:

PULP 95 net profits were around 50 per cent higher, at around $82 million

PULP 98 net profits were almost double, at around $117 million.

Net profits of PULP 95 and PULP 98 contributed around 60 per cent of profits on all petrol products, while only representing around a third of petrol volumes sold.

10 The ACCC has undertaken a process of cost allocation to obtain profit measures by product. This process is consistent with previous ACCC reporting on the financial performance of the downstream petroleum industry, and is set out in appendix A.

11 ACCC, 2014 report, pp. xlii and xliii.

12 PULP 95 is premium unleaded petrol with a minimum research octane number (RON) of 95. PULP 98 is premium unleaded petrol with a minimum RON of 98.


In 2017–18 cents per litre net profits on PULP 95 were 5.8 cpl and on PULP 98 they were 5.9 cpl, both almost four times net profits on RULP (1.5 cpl). Net profits on PULP 95 and PULP 98 in 2017–18 were both around 2.0 cpl higher than their average net profits in the period 2009–10 to 2013–14.

Retail sector net profits per litre on RULP, PULP 95, PULP 98 and EBP: 2009–10 to 2017–18

2010

–11

2011

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2012

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2013

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2014

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2017

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cpl (

real

ter

ms)

RULP PULP 95 PULP 98 EBP

2009

–10

0

1

2

3

4

5

6

7


Notes: This chart shows results for the period 2009–10 to 2017–18 as data for each grade of PULP was collected from 2009–10 onwards.

Real values in 2017–18 dollars.


Over time, PULP 95 and PULP 98 have become more expensive relative to the retail price of RULP. Between 2009–10 and 2017–18, the annual average price differential between RULP and PULP 95 increased from 10.9 cpl to 13.0 cpl—an increase of 2.1 cpl (in real terms). The annual average price differential between RULP and PULP 98 similarly increased from 16.5 cpl to 20.4 cpl—an increase of 3.9 cpl.

Higher average prices for PULP, relative to RULP, can be influenced by a variety of factors, including adjustments to specific international benchmarks and potentially changes in the quality of PULP products. However, the increases in PULP prices in recent years may be translating, at least in part, to higher profits on PULP.

Increases in premium unleaded petrol sales volumes contributed to higher profitsRetail sales volumes of PULP (particularly PULP 98) have increased over time, contributing to the total net profits generated on PULP:

PULP 95 sales volumes increased from around 9 per cent of petrol sales in 2009–10 to around 13 per cent of petrol sales in 2017–18. The majority of this increase occurred between 2009–10 and 2012–13, with PULP 95 volumes subsequently trending slightly downwards.

PULP 98 sales volumes, however, generally increased throughout the period, from around 10 per cent of petrol sales in 2009–10 to around 18 per cent in 2017–18.

In contrast, sales volumes of RULP have declined. Between 2009–10 and 2017–18 RULP sales volumes decreased from around 66 per cent of petrol sales to around 55 per cent.


Retail sector sales volumes for RULP, PULP 95, PULP 98 and EBP: 2005–06 to 2017–18

0

2

4

6

8

10

12

14

2005

–06

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2017

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bill

ion

litre

s

RULP PULP (total) PULP 95 PULP 98 EBP

Source: ACCC calculations based on data obtained from monitored companies.

Notes: The data collected allows volumes for the two grades of PULP (PULP 95 and PULP 98) to be disaggregated from 2009–10 onwards.


The increase in PULP 98 sales volumes has occurred across many parts of Australia. The ACCC previously noted that demand for PULP was particularly strong in NSW following the commencement of the ethanol mandate in that state in October 2007.13 NSW had the largest share of total PULP sales volumes in 2017–18 (with around 45 per cent of total PULP volumes sold across Australia).

In NSW PULP 95 sales volumes were higher than PULP 98 sales volumes until 2013–14. Thereafter PULP 95 volumes steadied and slightly declined as PULP 98 volumes continued to increase. Sales volumes of PULP 98 increased in NSW from around 13 per cent of petrol sales in 2010–11 to almost 25 per cent of petrol sales in 2017–18.14

In the rest of Australia PULP 98 sales volumes similarly increased from 2010–11 to 2017–18 while PULP 95 volumes remained relatively stable.

Consumer choice is likely a main driver behind the greater uptake of PULP 98. This is possibly through consumers seeking to maximise the performance and/or the fuel efficiency of their vehicles, as many companies report these potential benefits from using their premium 98 octane fuels. As the vehicle fleet has evolved, with a greater variety of car models and ‘luxury’ vehicles, consumers may also be responding to recommendations from manufacturers to use higher octane fuels in their vehicles.15

Another possible influence may be that PULP 98 has become more widely available at retail sites. Across the five largest cities (Sydney, Melbourne, Brisbane, Adelaide and Perth):

Around 75 per cent of retail sites sold PULP 98 in June 2014. That figure increased to around 87 per cent of sites by early-2020.

In contrast the proportion of retail sites selling PULP 95 in early-2020 was the same as in June 2014, at around 78 per cent of retail sites.16

13 ACCC, 2014 report, p. 104.

14 ACCC calculations based on Australian Petroleum Statistics data.

15 CommSec publishes a luxury vehicle sales index tracking sales of 17 luxury marques. Commsec noted that these sales peaked in calendar year 2016. See: https://www.commsec.com.au/content/dam/EN/ResearchNews/2019Reports/January/ECO_Insights_100119-luxury-vehicle-sales.pdf, accessed on 7 April 2020.

16 ACCC analysis of data from the Informed Sources Netwatch database.

https://www.commsec.com.au/content/dam/EN/ResearchNews/2019Reports/January/ECO_Insights_100119-luxury-vehicle-sales.pdfhttps://www.commsec.com.au/content/dam/EN/ResearchNews/2019Reports/January/ECO_Insights_100119-luxury-vehicle-sales.pdf


It is also the case that not all retail sites offer both PULP 98 and PULP 95 for sale. This may be due to space limitations on forecourts, including the number of available storage tanks. In Sydney in early-2020, for example, of the sites that sold PULP 98, around 22 per cent did not offer PULP 95.17

Convenience store and non-fuel sales are an important contributor to retail profitsConvenience store and non-fuel sales are a part of most retailer’s business models, with non-fuel offerings and services continuing to expand over time. Many retailers have partnerships or other arrangements in place with speciality food and beverage companies to provide a broader range of goods and services at their retail sites. With gross margins on convenience store and non-fuel sales generally much larger than those earned on fuel sales, these activities are important for retailers’ profitability.

The expansion of convenience store and non-fuel activities in the retail sector can be demonstrated by the consistent growth in revenues over time. They grew from around $2.5 billion in 2006–07 to around $4.5 billion in 2017–18 (an increase of around 80 per cent).

Retail sector revenue on convenience store and non-fuel sales: 2006–07 to 2017–18

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Convenience store and non-fuel net profits were $226 million in 2017–18, representing around 37 per cent of total retail sector net profits. The contribution of these activities to total retail net profits in 2017–18 was broadly similar to their contribution in previous years. In the period 2006–07 to 2013–14 their contribution ranged from 35 per cent to 41 per cent of total retail net profits.

17 ACCC analysis of data from the Informed Sources Netwatch database.


Retail sector net profits on fuel and convenience store and non-fuel sales: 2006–07 to 2017–18

2006

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2007

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2009

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$ m

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All fuels Convenience store and non-fuel

0

100

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Although gross margins on convenience products are higher than those on fuels, gross margins on convenience store and non-fuel sales have declined in recent years. In 2017–18 they were around 28 per cent, while over the period 2006–07 to 2013–14 they averaged around 32 per cent. This may be a reflection of an increasing prevalence of convenience store offerings among various petrol retailers seeking to attract customers with an offering broader than just fuel.

Regular unleaded petrol net profits and retail operating costs compared with gross indicative retail differences In recent years the ACCC has noted in its quarterly petrol monitoring reports that annual average gross indicative retail differences (GIRDs) for RULP in the five largest cities have increased significantly. Annual average real GIRDs in the five largest cities increased from 9.0 cpl in 2014–15 to 12.4 cpl in 2017–18 (an increase of around 38 per cent).

GIRDs are a broad indicator of gross retail margins based on analysis of average prices. They are calculated by subtracting average wholesale prices (as indicated by published terminal gate prices (TGPs)) from average retail prices. TGPs are the prices at which petrol can be purchased from wholesalers in the spot market and are posted on a regular basis on the websites of the major wholesalers. TGPs reflect the wholesale price of petrol only, and exclude other retail operating costs (such as freight, branding, rent, labour and utility costs). As such, the GIRDs indicator includes both a net profit component as well as retail operating costs.18

The ACCC has looked to the results of its financial analysis to determine if it provides any insights about trends in net profits and retail operating costs that may explain the increasing GIRDs.

A breakdown of the retail gross profits per litre on RULP from the financial analysis into net profit and retail operating cost components is shown in the following chart.

18 They also include freight costs and retail GST.


Components of retail gross profits on RULP from the financial data: 2005–06 to 2017–18

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cpl (

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Operating costs Net profit

2005

–06

5.3 5.3 5.3 5.4 5.6 5.8 6.2 6.3 6.5

8.7 8.9

0.5 0.6 0.7 1.0 0.8 0.9 1.2 1.7

1.4

1.8 1.5

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The chart shows that over the period 2005–06 to 2017–18 as net profits on RULP have increased, so have retail operating costs. There was a substantial increase in operating costs between 2013–14 and 2016–17, when they increased by 2.2 cpl. The increase in operating costs coincides with the notable increase in GIRDs between 2013–14 and 2016–17 (when they increased by 3.0 cpl).

The retail gross profits on RULP (i.e. the sum of retail operating costs and net profit shown in the chart above) are roughly similar to the GIRDs measure. However, they are not the same and a degree of caution is required when comparing them.

A key difference is that GIRDs are a calculation using average prices in certain capital cities, whereas the chart above represents the average net profits and retail operating costs of the monitored companies on a national basis. This is an important consideration as operating costs (particularly on a per litre basis) can be different across locations and between capital cities and regional areas.

Furthermore, GIRDs are based on average retail prices and TGPs for RULP. Retail sector gross profits from the financial data are based on the revenues, costs and volume data for RULP provided by monitored companies.

These comparability issues make it difficult to make definitive conclusions about the drivers of higher GIRDs. The evidence from the financial data suggests that increases in retail operating costs may have been an influence. However, the longer term and more gradual increase in net profits is also likely to have contributed to higher GIRDs.

Regular unleaded petrol net profits were a relatively small component of the retail price In 2017–18 the annual average retail price of RULP in the five largest cities in 2017–18 was 134.5 cpl. In comparison, retail net profits on RULP across the monitored companies in 2017–18 were 1.5 cpl. While these concepts are not directly comparable, it broadly illustrates that the net profits retailers earn on RULP sales, on average, are a relatively small component of the total price that motorists pay for RULP.19

It is also important to note that, as these results show average net profits on RULP across the monitored companies on a national basis, some retailers earn higher profits on RULP sales and others less.

19 For PULP 95, the annual average price in the five largest cities in 2017–18 was 147.5 cpl, and for PULP 98 it was 154.9 cpl. Retail net profits across the monitored companies in 2017–18 for PULP 95 were 5.8 cpl, and for PULP 98 they were 5.9 cpl.


Wholesale sectorWholesale net profits have been relatively stable overall but were higher on petrol productsProfits in the wholesale sector are derived from sales of fuels, lubricants and other oil products as well as other income relating to the petrol business (such as from franchisee fees and royalties).

Financial data for the wholesale sector has been collected from BP, Caltex, Mobil and Viva Energy (the refiner-wholesalers) and Liberty, Puma Energy and United (the independent wholesalers). While coverage is extensive, it is not complete. There are a number of other (smaller) independent wholesalers from which the ACCC does not collect wholesale data.

Across all products and services, wholesale sector net profits were around $976 million in 2017–18. While profits have fluctuated to some extent over time, compared with other sectors, wholesale net profits have been relatively consistent since 2008–09.

Wholesale sector net profits on all products: 2002–03 to 2017–18

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Avg: 2002–03 to 2007–08

2016–17 and 2017–18

2008–09 to2013–14




Despite the relatively stable performance across the sector, net profits on petrol products have improved in recent years. In 2017–18 they were $410 million, the highest on record over the period.

On a cents per litre basis wholesale net profits on petrol products were 2.4 cpl in 2017–18, which was more than double the average in the period 2008–09 to 2013–14 (1.1 cpl).


Wholesale sector net profits per litre on petrol products: 2002–03 to 2017–18

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Avg: 2002–03 to 2007–08

2016–17 and 2017–18

2008–09 to2013–14

cpl (

real

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ms)

-1.5

-1.0

-0.5

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On an individual product basis, wholesale sector net profits per litre on RULP were 1.2 cpl in 2017–18. Net profits on PULP products were significantly higher at 5.2 cpl.

Total supply sector and refiningRefining net profits increased following rationalisation in the industryRefining in Australia has undergone a period of substantial rationalisation over the longer term, with refinery closures and conversions of some refineries to import terminals. The number of operating refineries in Australia has halved—from eight in 2002–03 to four in 2017–18. The last refinery to close was BP’s Bulwer Island refinery in Brisbane in June 2015 (which was converted into an import terminal for jet fuel).

The four refineries currently operating in Australia are: Altona in Melbourne (Mobil), Corio in Geelong (Viva Energy), Kwinana in Perth (BP) and Lytton in Brisbane (Caltex).

The financial performance of the refining sector has fluctuated over time, with a phase of relatively high profits prior to the GFC (i.e. from 2002–03 to 2007–08), followed by annual average net losses in the six years after the GFC. Refinery net profits in 2016–17 and 2017–18, however, indicate a phase of improved performance.

In 2017–18 refining net profits were $845 million, the highest since 2007–08 when they were $1.87 billion. Four refineries contributed to the 2017–18 results, while seven contributed to the 2007–08 results.


Refining net profits on all products: 2002–03 to 2017–18$

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Avg: 2002–03 to 2007–08

2016–17 and 2017–18

2008–09 to2013–14

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Average net profit in the two years 2016–17 and 2017–18 was $743 million, which was lower than the average in the period prior to the GFC ($1.48 billion). In the period after the GFC refining recorded an average net loss of $135 million.

On a cents per litre basis, across all products and services, refining net profits were 3.0 cpl in 2017–18 and were the highest since 2007–08 (when they were 5.0 cpl).

The turnaround in the financial performance of the refining sector likely reflects a more competitive position of the remaining four Australian refineries in the context of the broader Asia-Pacific region, while also experiencing more favourable trading conditions.

Australia’s refineries experienced a comparatively lower, and more favourable, AUD–USD exchange rate in the two years 2016–17 and 2017–18 (when it averaged US 76 cents), relative to the six-year period after the GFC (when it averaged US 93 cents). As refiner margins (i.e. the difference between the price of refined petrol and the price of crude oil) are nominated in US dollars, their value in Australian dollar terms is influenced by the AUD–USD exchange rate.20 All else being equal, a weaker AUD–USD exchange rate will provide a higher refiner margin in Australian dollar terms.

The improved results for refining have been significant, and are a large influence on both the total supply sector and on the performance of the total downstream industry.

20 House of Representatives Standing Committee on Economics, Report on Australia’s oil refinery industry, January 2013, pp. 12–16, available at: https://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/oilrefineries/report.htm, accessed on 7 April 2020.

https://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/oilrefineries/report.htmhttps://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/oilrefineries/report.htm


Total supply net profits increasedThe total supply sector (which includes refining, as well as importing and buy-sell transactions) recorded significantly higher net profits in recent years. In 2017–18 the total supply sector was the largest contributor to total downstream industry profits (representing around 43 per cent).

The total supply sector recorded net profits of $1.19 billion in 2017–18, more than three times the net profits in 2016–17 ($378 million). Net profits in 2017–18 were the highest in the sector since 2007–08 ($2.99 billion), and a vast improvement after consecutive losses between 2011–12 and 2013–14.

The financial performance of the total supply sector has been relatively volatile over time. As well as reflecting the financial performance of refining, the total supply sector has exposure to international markets through the importation of crude oil and refined products. This sector is also required to hold and store product, as it coordinates its purchase, sale and distribution.

Total supply sector net profits on all products: 2002–03 to 2017–18

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Total downstream petroleum industryNet profits across the total downstream petroleum industry in 2017–18 were the highest in 10 yearsNet profits for the total downstream petroleum industry (i.e. across the retail, wholesale and total supply sectors in aggregate) have trended upwards in recent years. In 2017–18 total industry net profits were the highest recorded since 2007–08.21

Net profits on all products and services were $2.78 billion in 2017–18, or 2.9 cpl, more than double the total industry net profits in 2013–14 ($1.24 billion, or 1.4 cpl). However, results in 2017–18 were lower than the net profits generated between 2005–06 and 2007–08 (when they ranged from $2.84 billion to $3.97 billion).

The increase in total downstream industry net profits between 2013–14 and 2017–18 was driven by a combination of a significant increase in refinery profits, and higher retail and wholesale sector profits.

Total downstream petroleum industry net profits on all products and services: 2002−03 to 2017–18

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Average total downstream industry net profit in the two years 2016–17 and 2017–18 was $2.46 billion, which was around 5 per cent lower than the average in the period prior to the GFC ($2.58 billion) but around 180 per cent higher than the average in the period after the GFC ($0.88 billion).

21 Total downstream industry results adjust for inter-sector transactions within each of the vertically integrated companies that operate in multiple sectors, and are not comparable with the sum of results for each sector (with the exception of total net profits).


Total industry net profits on petrol products in 2017–18 were the highest recordedTotal industry net profits on petrol products were $1.44 billion in 2017–18, or 4.2 cpl, the highest recorded by the ACCC. They were around double the profits on petrol products across the industry in 2013–14 ($723 million, or 2.0 cpl).

Total downstream petroleum industry net profits per litre on petrol products: 2002−03 to 2017–18

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Average net profit on petrol products in the two years 2016–17 and 2017–18 was 3.7 cpl, which was higher than the average in the period prior to the GFC (2.7 cpl). In the period after the GFC average net profit was 1.1 cpl.

On an individual product basis across the total downstream industry, net profits per litre on RULP were 2.4 cpl in 2017–18, while net profits on PULP products were significantly higher at 7.8 cpl.


1. IntroductionThe ACCC has monitored the downstream petroleum industry since December 2007, and collected data from the major participants in the industry from 2008. The 11 companies (subsequently referred to as the ‘monitored companies’) that provide financial data (revenues, costs and profits) to the ACCC are:

refiner–wholesalers22—BP, Caltex, Mobil and Viva Energy23

independent wholesalers—Liberty, Puma Energy and United

supermarket chains—Coles Express and Woolworths

large independent retailers—7-Eleven and On The Run.

Some of the refiner–wholesalers and independent wholesalers also operate in the retail sector.

The ACCC last published aggregate financial results of the monitored companies in the downstream petroleum industry in 2014. Those results covered the period 2002–03 to 2013–14 and were included in the ACCC’s 2014 annual petrol monitoring report.24

This report provides an update on the financial results of these monitored companies for 2016–17 and 2017–18 (the latest data analysed). This report does not include results for 2014–15 and 2015–16, which was a period when the ACCC conducted other financial analysis of the petroleum industry as part of its regional market study reports. The analysis in the regional market studies involved the collection of retail site-specific financial data from a large number of retailers in order to determine the profitability of retail sites operating in certain markets.

All financial data in this report are presented in real terms in 2017–18 dollars. As in previous years, the ACCC’s analysis has been reviewed by external auditors.

1.1 Sectors in the downstream petroleum industryThe ACCC assesses the financial performance of the total downstream petroleum industry, as well as the performance of sectors within the industry. The Australian downstream petroleum industry can be divided into three broad sectors:

retail

wholesale

total supply.

The ACCC reports on each of these sectors, as well as presenting total industry results, which show the overall performance of the 11 monitored companies in aggregate, across all sectors. The ACCC also separately assesses and reports on the financial performance of refining in Australia (which is a part of the total supply sector).

The scope of this report, in terms of the sectors of the downstream petroleum industry and the participants in each sector that are covered, is shown in the highlighted area in figure 1.1.

22 Refiner-wholesalers are companies that refine, import and wholesale fuel in Australia.

23 The ACCC also collected financial from Shell when it operated in the Australian downstream petroleum industry. Following Vitol’s acquisition of Shell’s Australian downstream business in 2014, Vitol (trading as Viva Energy) has provided financial data to the ACCC.

24 ACCC, 2014 report.


Figure 1.1: Scope of the report

Upstream:Oil explorationand extraction

Domesticrefining

Buy-sell arrangements

Importingpetrol

Supply

Internationalrefining

Major wholesalers Major retailers

Minor wholesalers Minor retailers

Source: ACCC.

Note: Only imports of the refiner-wholesalers are included in the total supply sector.

The retail sector in this report includes the retail operations of BP and Caltex, the two supermarket chains, independent wholesalers and large independent retailers. Retail financial data were collected from 7-Eleven, BP, Caltex, Coles Express, On The Run, Puma Energy, United and Woolworths.

The wholesale sector in this report includes the wholesale purchasing and reselling of petroleum products and lubricants to retail and commercial customers by the four refiner-wholesalers and the independent wholesalers. Wholesale financial data were collected from the four refiner-wholesalers and Liberty, Puma Energy and United.

The total supply sector in this report represents overall supply activities including refining, importing and buy-sell transactions between the four refiner-wholesalers. As at 30 June 2018, there were four refineries in Australia, each operated by one of the refiner-wholesalers. Refinery and total supply sector data were collected from the four refiner-wholesalers.

The total downstream petroleum industry results in this report adjust for inter-sector transactions within each of the vertically integrated companies that operate in multiple sectors. As such, it is not comparable with the sum of results for each sector (with the exception of total net profits). For example, through the adjustments, the part of an integrated company’s wholesale revenue that is generated from selling to its own retail arm is eliminated in its consolidated result to avoid double counting.

1.2 Reporting categoriesAnalysis of the total downstream petroleum industry and of each of the sectors primarily covers the following two categories:

all products and services—i.e. oil-based products derived from crude oil processed in refineries, and other services such as convenience store sales

petrol products—i.e. RULP, PULP and EBP.

Most of the analysis focuses on these categories as it provides both an overall perspective of the performance of each sector and the industry, as well as results for petrol products since they are of most relevance to consumers.

Analysis of the retail sector also considers the financial performance associated with convenience store and non-fuel sales compared with those for all fuel products sold at the retail level (i.e. all petrol products plus diesel and automotive LPG).


To calculate net profits on particular products and groups of products and services, the ACCC has adopted an approach to allocate common operating costs. The methodology used to allocate costs and expenses and derive profits on individual products is consistent with previous ACCC reports on the financial performance of the industry and is set out in appendix A.

1.3 Key performance indicatorsThe main KPI used to assess the profitability of the downstream petroleum industry is adjusted earnings before interest and taxes (adjusted EBIT), referred to as net profit in this report.

Net profit per litre (i.e. cents per litre net profit) figures are also calculated by dividing net profit by the total volume of petrol products or fuel sold. These unit results take into account changes in the data reported over time as monitored companies have expanded or reduced their operations.

Other financial performance indicators used in this report include return on sales (RoS) and return on assets (RoA). A return on capital employed (ROCE) measure is also used in the context of the total downstream petroleum industry. Box 1.1 provides further information on the KPIs used in this report.

Box 1.1 Key performance indicators

Adjusted EBIT (net profit): EBIT is a common accounting measure of profit and measures the total returns to the firm before interest incomes or expenses and taxes are taken into account. The ACCC uses an adjusted EBIT profit measure. Adjusted EBIT excludes non-operating incomes, amortisation, impairment charges, and profits or losses on sales of fixed assets. Adjusted EBIT is commonly referred to in this report as net profit. It is presented in dollars as well as cents per litre.

Adjusted EBIT to sales (return on sales): The ratio of adjusted EBIT relative to sales revenue calculates the extent to which profit is earned from each dollar of revenue after deducting all relevant operating costs, other than interest and tax. This provides a consistent measure of profits from petrol activities and the petroleum industry rather than of total profits of the monitored companies.

Return on adjusted total assets (return on assets): The ratio of adjusted EBIT to total assets calculates the extent to which profit is earned relative to assets used in a company. Total assets have been adjusted to exclude deferred tax assets as they are not relevant to an after-tax profit assessment. Intangibles are excluded since those values have not been consistently provided by the monitored companies, and usually arise from the acquisition of other companies (as opposed to growth solely by increasing sales). It is expressed as a percentage of total assets.

Return on adjusted capital employed (return on capital employed): The ratio of adjusted EBIT to total assets less current liabilities is a common measure of the return on capital employed. This measure compares earnings with the total capital used in a company. In this respect, it is a similar measure to return on assets, except that it excludes current liabilities such as trade and other payables. This KPI is in effect a measure of the return on funds provided by non-current liabilities and owner’s equity, i.e. all capital used in a business.

Gross profit: Gross profit is a measure of profit calculated by deducting the costs of goods or services sold from sales revenues.

Gross margin: Gross margin is the ratio of gross profit to sales and indicates how much is left from each dollar of sales after costs of goods sold have been subtracted from sales revenues.


1.4 Aggregate resultsThe information provided to the ACCC is mostly commercially sensitive and has been provided on a confidential basis. To protect confidentiality, this report presents aggregated analysis of costs, revenues and profits across companies.

When considering these aggregate results, it is important to treat them as such, and remember that these aggregate results will not reflect the financial performance of any one particular company. Companies operating in the industry can have a variety of business models and ownership structures as well as different capital structures and cost bases that can affect their profitability.

1.5 Time seriesThe ACCC generally presents data in this report from 2002–03 (the earliest data available in most cases) to 2017–18, to provide a longer term perspective. Due to structural changes in the industry and changes in the method of data collection, most financial data presented for the retail sector covers the period 2005–06 to 2017–18. As noted earlier, this report does not include results for 2014–15 and 2015–16.

Throughout the report, analysis of average results is generally presented for the following time periods:

2002–03 to 2007–08, referred to as the period prior to the Global Financial Crisis (GFC)

2008–09 to 2013–14, referred to as the period after the GFC

2016–17 and 2017–18 (the latest two years analysed).

These time periods have particular significance to the petroleum industry, especially following the GFC when the total supply sector and refining experienced significant change.

1.6 Other issues Financial data are provided to the ACCC on a historical cost basis. Net earnings in the total supply sector and for refining will be influenced by the exposure of companies to international crude oil or refined petrol prices and exchange rate movements. This is due to changes in international prices or exchange rate movements between the time that crude oil is purchased and the time that refined petrol is processed and sold.

Appendix A sets out several important aspects to the data collection and methodology used in this report.


2. Financial performance of the retail sector

This chapter presents results on the financial performance of the retail sector. Key results for the monitored companies in the retail sector are presented below.

Retail sector results All products and services

2017–18 2016–17Net profit: $616 million $682 million

2.2 cpl on fuel sales* 2.6 cpl on fuel salesReturn on sales: 3.2% 3.9%Return on assets: 14.5% 18.1%Sales volumes: 17.6 billion litres

Total revenue: $19.4 billion

Total costs: $18.8 billion

2005–06 to 2007–08 2008–09 to 2013–14Average net profit: $256 million $440 million

1.1 cpl on fuel sales 1.5 cpl on fuel salesReturn on sales: 1.5% 2.1%Return on assets: 12.3% 14.0%

Petrol products

2017–18 2016–17Net profit: $333 million 3.0 cpl $323 million 2.9 cplRULP: $91 million 1.5 cpl

PULP 95: $82 million 5.8 cpl

PULP 98: $117 million 5.9 cpl

EBP: $43 million 2.8 cpl

2005–06 to 2007–08 2008–09 to 2013–14Average net profit: $81 million 0.7 cpl $203 million 1.6 cpl

Convenience store and non-fuel sales

2017–18 2016–17Net profit: $226 million $245 million

2006–07 to 2013–14Average net profit: $156 million

* Net profits on all fuel sales were $390 million in 2017–18.


2.1 Retail sector financial dataRevenues and profits in the retail sector are derived from the sale of fuel and non-fuel products and services to the public.

Sales of non-fuel products and services are an important source for overall profitability in the retail sector. Some of these services include convenience store sales, franchised businesses within the convenience store, food and beverage offerings, car and animal wash facilities and other traditional services such as the hire of trailers, gas bottle exchange and ATM services.

Financial data for the retail sector has been collected from the following retailers:

BP and Caltex (regarding their company-owned company operated retail sites)25

Coles Express and Woolworths

Puma Energy, United, 7-Eleven and On The Run.26

There are many smaller independent operators in the retail sector that are not included in the ACCC’s monitoring program and the financial performance of these operations is not reflected in this report.

Based on the retail market share data that the ACCC published for 2016–17, the retail financial data in this report represents approximately 70 per cent of total petrol sales volumes and around half of total retail sites in Australia.27

The majority of data presented in this chapter covers the period 2005–06 to 2017–18, as earlier data is not comparable due to structural changes in the industry and improvements in data collection. Comparable data for 2014–15 and 2015–16 is also not available.

The retail sector has undergone significant change over time, and continues to do so. As well as growth in convenience offerings, some retailers have expanded their retail site networks as the total number of retail sites in Australia has increased. At 30 June 2018, there were around 7300 retail fuel sites in Australia, compared with around 6700 at the end of 2013–14.28

Puma Energy, United and 7-Eleven have gradually expanded their retail site networks in recent years. Caltex has also increased its retail network over time, undergoing a process of transitioning away from franchise models for its retail sites and increasing its company-operated retail site network.29 These, and other similar changes in the scope of the retail operations of companies, can be accounted for in aspects of the analysis, such as in the volume weighted cents per litre results presented in this report.

Chapter 1 and appendix A provide further information regarding the retail financial data presented in this report.

25 While the ACCC collected financial data from Viva Energy for other sectors of the industry (wholesale, refinery and total supply), it did not collect retail financial data from Viva Energy for 2017–18 as Viva Energy operated a relatively small number of retail sites in that year.

26 In prior years, retail financial data was also collected from other companies when they were operating in the retail sector. These included: Mobil, which no longer operates retail sites; and Ausfuel and Neumann (both of which were purchased by Puma Energy in 2011–12).

27 ACCC, Retail & wholesale petrol market shares in Australia, September 2018, chart 1.2, at: https://www.accc.gov.au/publications/petrol-industry-reports/retail-wholesale-petrol-market-shares-in-australia.

28 ACCC analysis of the Informed Sources Netwatch database.

29 Caltex, Caltex Investor Day, 31 October 2018, at: https://www.caltex.com.au/our-company/investor-centre/reports-and-presentations, accessed on 7 April 2020.

https://www.accc.gov.au/publications/petrol-industry-reports/retail-wholesale-petrol-market-shares-in-australiahttps://www.accc.gov.au/publications/petrol-industry-reports/retail-wholesale-petrol-market-shares-in-australiahttps://www.caltex.com.au/our-company/investor-centre/reports-and-presentationshttps://www.caltex.com.au/our-company/investor-centre/reports-and-presentations


2.2 Retail sector—sales volumesChart 2.1 shows retail sales volumes of fuels over the period 2005–06 to 2017–18. Fuel products in this chapter refers to petrol products (RULP, PULP and EBP) as well as diesel and automotive LPG sold at the retail level.

The chart shows that total fuel sales volumes were 17.6 billion litres in 2017–18, an increase of around 3 per cent from 2016–17 (17.1 billion litres), but lower than the peak in 2012–13 (18.3 billion litres).

Chart 2.1: Retail sector sales volumes by fuel type: 2005–06 to 2017–18

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Notes: The data collected allows volumes for the two grades of PULP (PULP 95 and PULP 98) to be disaggregated from 2009–10 onwards.


The chart indicates that the mix of fuel products sold at the retail level has changed significantly over the period. It shows that there was:

a significant decline in RULP sales volumes—from around 63 per cent of total fuel sales in 2005–06 to around 35 per cent in 2017–18

an increase in PULP sales volumes—from around 13 per cent of total fuel sales in 2005–06 to around 19 per cent in 2017–18

– PULP 95 sales volumes increased from around 7 per cent of total fuel sales in 2009–10 to around 8 per cent in 2017–18

– PULP 98 sales volumes increased from around 7 per cent of total fuel sales in 2009–10 to around 11 per cent in 2017–18

a significant increase in diesel sales volumes—from around 15 per cent of total fuel sales in 2005–06 to around 35 per cent in 2017–18

a significant increase in EBP sales volumes from around 1 per cent of total fuel sales in 2005–06 to around 14 per cent in 2010–11, before a decrease to around 9 per cent in 2017–18.


2.3 Retail sector—all products and services—total revenues and costs

Chart 2.2 shows total revenue and costs for all products and services in the retail sector over the period 2005–06 to 2017–18.

Overall trends in revenues and costs at the retail sector are influenced by a number of factors, but changes in fuel prices are a significant influence. For example, in 2013–14 when total revenues and costs were at their highest over the period, the annual average price of RULP across the five largest cities was 160.5 cpl (in real 2017–18 dollars). In 2016–17 and 2017–18 the annual average prices of RULP were lower—124.8 cpl and 134.5 cpl respectively.

Fuel sales volumes, and the level of convenience store and non-fuel sales, also influence trends in revenues and costs over time.

Chart 2.2: Retail sector total revenue and costs, all products and services: 2005–06 to 2017–18

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Chart 2.2 shows that total revenue and costs in 2017–18 were $19.4 billion and $18.8 billion respectively. Revenue increased by around 12 per cent compared with 2016–17, while costs increased by around 13 per cent.

In 2017–18, revenue from sales of fuel products accounted for around 77 per cent of total revenue. The largest contributions to fuel revenue were from sales of diesel (around $5.1 billion) and RULP (around $4.9 billion). Together, these fuels represented around 70 per cent of total fuel volumes sold in 2017–18.

Convenience store and other non-fuel sales have been an important, and growing, source of income in the retail sector. The expansion of convenience store and non-fuel activities in the retail sector is demonstrated by the consistent growth in their revenues over time. They grew from around $2.5 billion in 2006–07 to around $4.5 billion in 2017–18 (an increase of around 80 per cent). In 2017–18 revenue from convenience store and non-fuel sales contributed around 23 per cent of total revenue.

Chart 2.3 shows revenue for convenience store and non-fuel sales over the period 2006–07 to 2017–18.30

30 Note that the time series presented in this chart is from 2006–07 onwards. A shortened template was used in earlier years to collect data and convenience store KPIs cannot be calculated from this shortened template.


Chart 2.3: Retail sector revenue for convenience store and non-fuel sales: 2006–07 to 2017–18

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2.4 Retail sector—all products and services—net profitsNet profits in the retail sector include profits from the sale of fuel as well as convenience store and other non-fuel products and services. Chart 2.4 shows net profits on all products and services in the retail sector over the period 2005–06 to 2017–18.

Chart 2.4: Retail sector net profits, all products and services: 2005–06 to 2017–18

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Chart 2.4 shows that in 2017–18, net profits were $616 million. In 2016–17 they were $682 million, the highest recorded over the period.


Average net profits in the two years 2016–17 and 2017–18 were $649 million, which was around 48 per cent higher than the average in the period after the GFC ($440 million), and over 150 per cent higher than the average in the period prior to the GFC ($256 million).

2.4.1 Cents per litre net profits on all products and services and on all fuels

Net profits on all products and services (including convenience and non-fuel products and services) on the basis of every litre of fuel sold were 3.5 cpl in 2017–18 and 4.0 cpl in 2016–17. This compares with an average net profit of 2.5 cpl in the period after the GFC, and 1.7 cpl in the period prior to the GFC.

Chart 2.5 shows net profits per litre for all fuel sales (i.e. petrol products, diesel and automotive LPG) in the retail sector over the period 2005–06 to 2017–18. Net profits on all fuel sales were 2.2 cpl in 2017–18 and 2.6 cpl in 2016–17. This compares with an average net profit of 1.5 cpl in the period after the GFC, and 1.1 cpl in the period prior to the GFC.

Chart 2.5: Retail sector net profits per litre, all fuels: 2005–06 to 2017–18

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2.5 Retail sector—fuel and convenience store and non-fuel sales—net profits

To analyse the financial performance in terms of net profits on particular fuel products and convenience store and non-fuel sales, the ACCC has applied a methodology to allocate common (operating) costs in the retail sector. The methodology used to allocate operating costs and estimate individual product net profits, which is consistent with that applied by the ACCC in previous reports, is detailed in appendix A.

In 2017–18 around 63 per cent of total net profits in the retail sector ($390 million) were generated from fuel sales and around 37 per cent were from convenience store and non-fuel sales ($226 million).

Chart 2.6 shows the contribution to total retail net profits of all fuel sales, and the contribution from convenience store and non-fuel sales, over the period 2006–07 to 2017–18.

Chart 2.6: Retail sector net profits, fuel and convenience store and non-fuel sales: 2006–07 to 2017–18

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Convenience store and non-fuel sales have been a significant component of overall retail profitability for a number of years. Their contribution in 2017–18 (at around 37 per cent of retail net profits) is broadly similar to their contribution in the period from 2006–07 to 2013–14, which ranged from 35 per cent to 41 per cent of total retail profits. On average over this period, convenience store and non-fuel sales contributed around 39 per cent of retail net profits.

Chart 2.7 provides a further breakdown of chart 2.6 to show the contribution to total retail net profits of various fuel types: petrol products (i.e. RULP, PULP and EBP), diesel, and automotive LPG over the period 2006–07 to 2017–18. The contribution from convenience store and other non-fuel sales is also shown in the chart.


Chart 2.7: Retail sector net profits, by fuel products and services: 2006–07 to 2017–18

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Chart 2.7 shows that in 2017–18 net profits were:

$333 million on petrol products, the highest recorded over the period and an increase of around 3 per cent from 2016–17 ($323 million)

$52 million on diesel, which was the lowest recorded over the period

extremely small on automotive LPG, at around $5 million

$226 million on convenience store and non-fuel products and services, a decrease of around 8 per cent from 2016–17 ($245 million).

In 2017–18 petrol products made up over 85 per cent of net profits on all fuels. Chart 2.7 shows that the higher total retail sector profits in 2016–17 and 2017–18, compared with 2013–14, were largely driven by increases in net profits on petrol products. This is considered in further detail in section 2.7.

Convenience store and non-fuel sales remained a strong generator of overall profits in the retail sector. The profit margins of these products and services, however, have declined marginally since 2013–14 (see box 2.1).


Box 2.1 Convenience store gross margins

The ACCC’s data collection captures gross margins for each fuel, and for convenience store and non-fuel sales. Gross margins are calculated by subtracting the cost of goods sold (purchases and usually transport costs in the retail sector) from revenue. Gross margins include retail operating costs and should not be confused with net profits.

Gross margins—expressed as a percentage of revenue—represent the proportion of each revenue dollar that a retailer retains after deducting the direct costs associated with the sale of the good.

Chart 2.8 shows gross margins on petrol products, diesel, automotive LPG and convenience store sales over the period 2006–07 to 2017–18.

Chart 2.8: Retail sector gross margins, by fuel and convenience store and non-fuel products and services: 2006–07 to 2017–18

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The chart shows that the gross margins on convenience store and non-fuel sales are generally much larger than those earned on fuel sales. Gross margins on convenience store and non-fuel sales were lower in 2016–17 and 2017–18 compared with previous years. In 2017–18 the gross margins on convenience store and non-fuel sales were 28 per cent. This was lower than the average gross margin over the period 2006–07 to 2013–14 of 32 per cent.

In contrast, gross margins on fuel sales have increased in recent years. For petrol products, gross margins increased from an average of 7 per cent over the period 2006–07 to 2013–14 to 14 per cent in 2017–18.


2.6 Retail sector—all products and services—other performance measures

As outlined in chapter 1, in addition to net profit, the ACCC has considered other measures of financial performance of the petroleum industry. For the retail sector, the ACCC has considered both return on sales (RoS) and return on assets (RoA).

Chart 2.9 shows RoS and RoA for all products and services in the retail sector over the period 2005–06 to 2017–18.

Chart 2.9: Retail sector return on sales and return on assets, all products and services: 2005–06 to 2017–18

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RoS for the retail sector was 3.2 per cent in 2017–18, and 3.9 per cent in 2016–17. The retail sector RoS was higher than that for the wholesale sector, but lower than that for refining.

Average RoS in the two years 2016–17 and 2017–18 was 3.6 per cent, which was higher than both the average in the period prior to the GFC (1.5 per cent) and in the period after the GFC (2.1 per cent).

RoA for the retail sector was 14.5 per cent in 2017–18, and 18.1 per cent in 2016–17. The retail sector RoA was similarly higher than that for the wholesale sector, but lower than that for refining.

Average RoA in the two years 2016–17 and 2017–18 was 16.3 per cent, which was higher than both the average in the period prior to the GFC (12.3 per cent) and in the period after the GFC (14.0 per cent).


2.7 Retail sector—petrol products—net profits This section further assesses the financial results on petrol products (i.e. RULP, PULP and EBP) in the retail sector. The methodology used to allocate expenses and derive net profits on petrol products is set out in appendix A.

Chart 2.10 shows net profits on petrol products over the period 2005–06 to 2017–18.

Chart 2.10: Retail sector net profits, petrol products: 2005–06 to 2017–18

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The chart shows that net profits on petrol products were $333 million in 2017–18, the highest recorded by the ACCC. This was an increase of around 3 per cent from 2016–17 ($323 million).

Average net profits in the two years 2016–17 and 2017–18 were $328 million, which was around 62 per cent higher than the average in the period after the GFC ($203 million), and over 300 per cent higher than the average in the period prior to the GFC ($81 million).

The contributions of net profits from individual petrol products over the period 2009–10 to 2017–18 are shown in chart 2.11.31

31 This chart shows results for the period from 2009–10 to 2017–18 as data for each grade of PULP was only collected from 2009–10 onwards.


Chart 2.11: Retail sector net profits, RULP, PULP 95, PULP 98 and EBP: 2009–10 to 2017–18

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In 2017–18 the largest contributors to net profits on petrol products were PULP products (PULP 95 and PULP 98), which together accounted for $199 million (or 60 per cent) of retail net profits generated on petrol products.

Net profits on both PULP 95 and PULP 98 were the highest on record in 2017–18. Compared with average net profits over the period 2009–10 to 2013–14, in 2017–18:

PULP 98 net profits were almost double, at around $117 million

PULP 95 net profits were around 50 per cent higher, at around $82 million.

Net profits on RULP contributed around $91 million, or around 27 per cent of all net profits on petrol products in 2017–18. They were the lowest net profits on RULP since 2011–12.

Increases in PULP sales volumes (particularly PULP 98) is partly contributing to higher PULP profits.

The ACCC has previously noted that demand for PULP has been particularly strong in NSW following the commencement of the ethanol mandate in that state in October 2007.32 NSW represented the largest share of total PULP sales volumes in 2017–18 (at around 45 per cent of total PULP sales volumes across Australia).

In NSW PULP 95 sales volumes were higher than PULP 98 sales volumes until around 2013–14. Thereafter PULP 95 volumes steadied and slightly declined as PULP 98 volumes continued to increase. Sales volumes of PULP 98 increased in NSW from around 13 per cent of petrol sales in 2010–11 to almost 25 per cent of petrol sales in 2017–18.33

In the rest of Australia PULP 98 sales volumes increased between 2010–11 and 2017–18 while PULP 95 volumes remained relatively stable.

Consumer choice is likely a main driver behind the greater uptake of PULP 98. This is possibly through consumers seeking to maximise the performance and/or the fuel efficiency of their vehicles, as many companies report these potential benefits from using their premium 98 octane fuels. As the vehicle

32 ACCC, 2014 report, p. 104.

33 ACCC calculations based on Australian Petroleum Statistics data.


fleet has evolved, with a greater variety of car models and ‘luxury’ vehicles, consumers may also be responding to recommendations from manufacturers to use higher octane fuels in their vehicles.34

Another influence may be that PULP 98 has become more widely available at retail sites, compared with PULP 95. Across the five largest cities (Sydney, Melbourne, Brisbane, Adelaide and Perth):

Around 75 per cent of retail sites sold PULP 98 in June 2014. That figure increased to around 87 per cent of sites by early-2020.

In contrast, the proportion of retail sites selling PULP 95 in early-2020 was

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