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Special Report October 2011

Top 10 Most Profitable Industries

BySeniorAnalystsNikoletaPantevaandJustinMolavi

As the economy recovers, many industries will increase profit margins, but some will operate at a much more efficient rate than the average
Five of the 10 most profitable industries are mining related
In a profitability analysis of US industries, IBISWorld found that five out of 10 of the most profitable industries are mining related: from copper to molybdenum to oil to iron ore. Furthermore, the Information Age has placed high value on intellectual property, so its no surprise that two of the ten industries on the list, including the most profitable industry, involve the development and licensing of such work. Operating Systems & Productivity Software Publishing This industry is highly concentrated with well-known operating systems publishers. While entry into this market may be extremely difficult, once in, firms can find comfort in the 61.0% profit margins. The intellectual nature that comes with developing these products makes them very high in value. Furthermore, any additional changes or upgrades are made at a low marginal cost, which allows for additional sales to quickly become profit. Trusts & Estates Despite having no major players, the average operator in the Trusts & Estates industry is highly profitable. The legal entities included in this industry range from personal trusts and estates to wills, which are managed on behalf of the beneficiaries. Companies do not incur portfolio management costs, as these activities are handles by firms in the Portfolio Management and US Custody, Asset and Securities Services industries. Profit will account for an estimated 54.0% of revenue in 2011. Copper, Nickel and Zinc Mining Mining companies hold off on mining activity when commodity prices (copper, nickel and zinc) are low, ensuring high profit margins before a project is undertaken. Copper sales generate 73.9% of industry revenue and have carried industry profit margins with high demand for construction and electronics manufacturing abroad. Continued emerging economy growth will make it easy for this industry to continue reaching high profit margins. Oil Drilling and Gas Extraction Industry firms often dont drill for oil or gas without the project being profitable to begin with, providing a strong foundation for industry profitability. Oil prices have risen substantially since the recession, supported by tension in the Middle East and growth in demand from emerging economies. These prices, however, are volatile and vary quite a

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Top10MostProfitableIndustries

bit from quarter to quarter which may hurt profitability in some cases. Syrup & Flavoring Production Companies that make syrups and flavorings for use in downstream softdrink production are highly profitable. Inputs include sugar and corn syrup, both of which are typically low cost. Additionally, the high value added by syrup and flavoring producers allows these firms to charge high prices to buyers. Together, these factors allow for high industry profitability, at an estimated 47.5% of revenue in 2011.

Iron Ore Mining Iron miners have been supported by strong demand abroad for steel as emerging economies focus on infrastructure spending and build out. These mining firms also pay close attention to iron prices before mining to keep profit margins high. Steel prices are expected to continue rising as China builds out large infrastructure projects. Additionally, new steel-making techniques are incentivizing steel producers to produce more spurring growth in iron ore purchasing.

Top10mostprofitableindustries 
Industry Operating Systems & Productivity Software Publishing Trusts & Estates Copper, Nickel, Lead & Zinc Mining 2011Profitmargin  (%) 61.0 54.0 52.1 MajorPlayers Microsoft Apple No major players Rio Tinto PLC Grupo Mexico SA de CV Teck Resources Limited Chevron Corporation Conoco Phillips BP PLC Royal Dutch/Shell Group ExxonMobile Corporation No major players Cliffs Natural Resources Inc. United States Steel Corporation ArcelorMittal SA Simon Property Group Inc. General Growth Properties Inc. Vornado Realty Trust Brookfield Properties Corporation Freeport-McMoRan Copper & Gold Inc. Rio Tinto Group Stillwater Mining Company Thompson Creek Metals Company Inc. Cameco Corp. The Walt Disney Company Barrick Gold Corporation Newmont Mining Corporation Rio Tinto Group Kinross Gold Corporation
SOURCE: WWW.IBISWORLD.COM

Oil Drilling & Gas Extraction

48.0

Syrup & Flavoring Production Iron Ore Mining

47.5 46.4

Commercial Leasing

43.0

Molybdenum & Metal Ore Mining

42.0

Intellectual Property Licensing Gold & Silver Ore Mining

40.0 39.1

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Top10MostProfitableIndustries

About IBISWorld Inc.

Recognized as the nations most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10locations worldwide. For more information, visit www.ibisworld.com or call 1-800-330-3772.

Commercial Leasing Commercial leasing agencies are expected to keep 43.0% of revenue as profit in 2011. Revenue and profit for this industry are largely dependent on the interest rate and value of the loans made. Despite low interest rates, commercial lenders are still earning high margins due to the high value of the loans they make. As interest rates rise over the next five years, the industrys profit margins are likely to increase further. Molybdenum & Metal Ore Mining Other types of metal and molybdenum miners also wait for high relative prices before mining. Molybdenum is used as an alloy agent for steel and its demand is ultimately driven by demand for steel. Emerging economies demand for steel has ensured high profits margins as the price for molybdenum and other types of related metals rose in tandem. Prices are set to continue rising as infrastructure demand abroad expands.

Intellectual Property Licensing Firms in this industry experience high profit margins due to strong demand from buying industries. The low costs associated with granting intellectual property rights, coupled with the large amount of revenue derived from existing high-value brands seeking the industrys services, allow companies to keep about 40.0% of their sales as income. Gold and Silver Ore Mining Along with other types of miners, gold and silver mining companies dig for gold at higher rates when prices for gold and silver increase. Growing investor uncertainty has created interest in gold investing, as a hedge to inflation and other types of economic malaise. As such, gold prices have grown substantially while global economic growth is still skittish and the US Federal Reserve continues to pump money into the system. Higher prices have set the stage for sizeable profit margins as gold miners pan for gold increasingly.

Contact: SavannahHaspel
VP, Public Relations IBISWorld Phone: 1-310-866-5044 savannahh@ibisworld.com www.ibisworld.com

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