The Most Profitable Industries in Australia

During the COVID-19 pandemic, a variety of Australian industries have been subjected to difficult operating conditions and lower profitability. However, a small number of industries have surged over the past year and have stood above the pack with strong profit margins.

The industries with the strongest profit margins in Australia include:

Iron ore mining

Profit is anticipated to account for 49.3% of revenue in the Iron Ore Mining industry in 2020-21, and this share has increased over the past five years. The price of iron ore has surged in 2020-21, to reach its highest level since 2011. COVID-19 stimulus measures have supported increased steel production in China, driving iron ore prices higher. Reduced iron ore supply from Brazil has further supported higher iron ore prices and therefore expanding profit margins for the industry.

Surging iron ore prices during the COVID-19 pandemic have catapulted some miners up the IBISWorld Top 500 Private Companies list. These have included Hancock Prospecting, which increased revenue by 24.4%, and Fortescue Metals Group, which increased revenue by 28.0%.

Profit margins for iron ore mining firms are projected to decline over the next five years, as continued increases in output volumes and slower growth in demand from China reduce iron ore prices. Industry revenue is forecast to decrease at an annualised 5.8% over the five years through 2025-26, to $95.4 billion. Large revenue falls are forecast in 2021-22 and 2022-23, as iron ore prices fall and export revenue generated from China declines.

Toll road operators

The Toll Road Operators industry has remained one of the most profitable industries in Australia, despite revenue declines associated with the COVID-19 pandemic. Profit is expected to account for 41.7% of industry revenue in 2020-21. Revenue across the industry has increased at an annualised 0.9% over the five years through 2020-21, to $2.7 billion. This includes an anticipated decline of 4.2% in in the current year. The industry has expanded significantly over the past five years. Most industry assets have been built through public-private partnerships, in which the private sector is granted a concession to build, own, operate and transfer road assets.

Rising motor vehicle numbers are forecast to boost traffic congestion over the next five years, supporting demand for toll roads. Revenue is projected to grow at an annualised 4.5% over the five years through 2025-26, to $3.3 billion. Ongoing growth in the Road Freight Transport industry is anticipated to boost the number of trucks and commercial vehicles on toll roads, supporting industry profitability through higher toll revenue. Toll income from private motorists is also expected to rise over the period, as increasing household disposable incomes support growth in toll road use, and the capacity of current users to afford toll increases.

Electricity distribution

Although players in the Electricity Distribution industry typically operate as highly regulated natural monopolies, these players are permitted to generate significant profit margins to encourage sufficient investment in critical electricity infrastructure. Profit is expected to account for 37.2% of industry revenue in 2020-21. Industry profitability has fallen over the past five years, due to a change in Australian Energy Regulator (AER) regulation for most major players. Prior to 2015, industry companies invested large amounts of capital in their networks to increase revenue. However, much of this expenditure was subsequently viewed as unnecessary gold-plating, intended only to enable more favourable revenue determinations from the AER. As a result, the AER has sought to significantly reduce regulated revenue in its current regulatory period, and lower profit margins.

Industry revenue is forecast to grow at an annualised 1.0% over the five years through 2025-26, to $15.6 billion. Decisions made by the Australian Energy Regulator (AER) over the next five years will significantly affect the industry’s performance. Industry profitability is anticipated to come under increasing pressure as industry operators and regulators adapt to new market conditions, such as the rise of distributed electricity generation and storage through household solar and battery systems. Distribution networks maintain large fixed assets and these assets are proving increasingly ill-suited to varying customer needs.

Dental services

The Dental Services industry typically generates high profit margins, with dentists typically drawing personal income directly from business profit. Most industry enterprises are small-scale sole proprietorships. The number of registered practising general and specialist dental practitioners grew by 14.7% between June 2015 and September 2020, to just over 23,600. Enterprise numbers are expected to increase at an annualised 3.7% over the five years through 2020-21. Industry profit margins have increased over the same period, reflecting the move towards corporate dentistry and an influx of sole proprietors that do not pay themselves a wage but instead draw income from business profit.

Enterprise numbers are forecast to continue rising over the next five years, intensifying competition between dentist practices. This competition is projected to put downward pressure on prices over the period, constraining margins. Higher wage costs will also likely limit profit margins. Industry revenue is expected to rise at an annualised 1.5% over the five years through 2025-26, to $10.9 billion.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647

Email: mediarelations@ibisworld.com