Transcript Financial Impact on Fuel Retailers

Portfolio Committee on Energy
“Downstream Liquid Fuel Sector”
SAPRA - Gerrie Lewies
24 July 2013
Agenda
Retail Fuel Industry Overview
Challenges Facing Fuel Retailers
Financial Impact on Fuel Retailer
 Our Way Forward
 Our Strategic Intent
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Agenda
Retail Fuel Industry Overview
 Challenges Facing Fuel Retailers
 Financial Impact on Fuel Retailer
 Our Way Forward
 Our Strategic Intent

Retail Fuel Industry Overview
Highly Regulated Industry
Regulatory Accounting System(RAS) to be
implemented by December 2013
 Approx. 4200 Service Stations
 Approx. 6000+ retail licenses issued
 Competition is Brand Based
 High Price Volatility
 Importance of Security of Supply
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Retail Fuel Industry Overview
Diesel not regulated
 Use of Diesel Cards – vertical integration
 Fuel cross subsidisation
 20% Increase in price per litre
 Price increase results in decrease in sales
 Retail margin is 7,5% of price per litre
 Currently large focus on convenience – not
regulated
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Retail Fuel Industry Overview
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Approx. 60% of sites are Oil company owned
These account for about 70% of the volume
NB - RAS developed for Retailer owned sites
 Approx. 56 000 attendants
 Approx. 17 000 other staff
 Very high employee turnover
 Constant investment in training
Retail Fuel Industry Overview
Fuel Retailer most of the time on
receiving end
 Regulatory lag with margin
increases
 Fuel Retailer is the collection
agent
 Service station (24/7/52) not a
normal business
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Agenda
Retail Fuel Industry Overview
 Challenges Facing Fuel Retailers
 Financial Impact on Fuel Retailers
 Our Way Forward
 Our Strategic Intent

Challenges
Facing Fuel
Retailers
Global & Local
Economy
Government
Financial
Institutions
V&SM
Competition
Relation
ships
Service
Station
24/7/52
Culture
SA&LM
Leadership
Values
H, S & S
Stakeholders
Labour
Global & Local Economy
Increasing cost per barrel of oil
 Weakening of Rand/Dollar exchange rate
 Increase in Repo Rate
 Increase in CPI/PPI
 Average cost per fuel drop = R400 000
 Average 8 drops per month = R3 200 000
 Increasing cost to do business
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Financial Institutions
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Rising interchange costs as a result of different
methods of payment
 Rising insurance costs
 Excess insurance payments
 High overdraft charges
 Increasing finance costs
 Increasing cash deposit fees
Labour
Increase in labour unrest
Unintended consequences of strikes
 Unreasonable Union demands
 High unemployment
 Increase in shoplifting
 Increase in armed robberies
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Stakeholders
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Inconsistency with RAS implementation
 Increase in vertical integration
 Increase in cross subsidisation
 No guarantee on security of supply
 Bank guarantee to cover 1-2.5 drops
 Tenure not adequate to secure ROI
No standard “Business Valuation” model
 No security on goodwill
Retailer to insure Oil company equipment
Health, Safety & Security
Increase in cost of health, safety & security
standards & requirements
 Cost of contamination and/or spillage
 Unemployed target service stations for life
support
 Financial impact of armed robberies
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Health, Safety & Security
Health, Safety & Security
Health, Safety & Security
Health, Safety & Security
Competition
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Financial impact of new sites on current sites
 Oil companies compete with own brand
Regulated environment prevents conditional
selling
 Cost of marketing constraints
 Cost of Oil Companies competing
Government
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Administration barriers in the start up and
running of a service station
 Cost of non compliance
 Lack of regulation enforcement
 Increase in rates & taxes
 Margin erosion
Cost and/or safety of zone differentiation
Agenda
Retail Fuel Industry Overview
 Challenges Facing Fuel Retailers
Financial Impact on Fuel Retailers
 Our Way Forward
 Our Strategic Intent
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
Financial Impact On Fuel Retailers
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Security of Supply - Standing
dry on 6 000 litres per month
for 12 months @ .992cpl =
R71 424 per annum
Financial Impact On Fuel Retailers
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Fuel Price Changes - R1 increase
in price per litre @ 40 000lt per
delivery = R40 000 extra for next
fuel delivery and an increase in the
fuel guarantee
Financial Impact On Fuel Retailers
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Different Payment Methods - The use
of Credit Cards have changed the cost of
cards by approx. 200%. On a 300 000 lt
service station the real increase is
approx. R11 000 to R33 000 per
month as a result of the use of credit
cards
Financial Impact On Fuel Retailers
Armed Robberies - One
major armed robbery could
close the doors for 2 weeks =
R170 000 loss in income
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Financial Impact On Fuel Retailers
Armed Robberies - One
major armed robbery could
result in an actual loss in fuel
sales of 50 000 litres per
month = R600 000 loss in
income per annum
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Agenda
Retail Fuel Industry Overview
 Challenges Facing Fuel Retailers
 Financial Impact on Fuel Retailers
 Our Way Forward
 Our Strategic Intent

Our Way Forward
First of all we would like to take this
opportunity to thank the Government
Officials for their dedicated effort and hard
work with the implementation of the
Regulatory Accounting System
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Our Way Forward
To continue to work closely with
Dealer Councils and Government
Officials to implement the principles
of RAS to help fuel retailers to secure
their future
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Our Way Forward
To engage positively with all
Stakeholders to develop win-win
solutions to address the challenges
facing the fuel retailers
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Our Way Forward
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To work closely with all Government
Departments to address the barriers
to do business to ensure speed of
service delivery
Our Way Forward
To engage the Setas, Stakeholders,
Government, Service Providers and the
SA Fuel Retailers’ Network to continue
to utilise service stations for the
employment of the (18.2) unemployed,
training & education and placement in
the Fuel Industry Value Chain
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Agenda
Retail Fuel Industry Overview
 Challenges Facing Fuel Retailers
 Financial Impact on Fuel Retailers
 Our Way Forward
 Our Strategic Intent
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Our Strategic Intent
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To make a difference to the
Fuel Industry Value Chain to
unleash the power of
potential of the SA Economy
Thank you for listening
Gerrie Lewies - National Chairman South African Petroleum Retailers’
Association