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International Column
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Who Will Knock Exxon Mobil off?
A quick look at FY2010’s top Profit-Making US firms (B&E US Power 100, 2011), and on how these Powerhouses will Perform in 2011 and a Decade later. Will there be a New #1 or will Big Oil Dominate forever?
Issue Date - 21/07/2011
The signs are everywhere. From General Motors (GM) to Ford, from Citigroup to AIG – the list of those who have defied the quotient of “sustainability” in the modern capitalistic era is to say the least, very long. Once they were the original model of success in profit-making – an archetype to emulate for all profit-loving corporations for years together. But in time, their brains which over decades were hardwired to be optimistic, were forced to live through the pain-filled sensation of losses; the glorious assembly lines and conference rooms turned a Golgotha. You ask – how could GM – a company that until 2008 had been America’s most profitable in 30 of the past 50 years – suddenly go bust? GM was what made Detroit – it made America audacious, a characteristic that was thereon inculcated into other big corporations in other First World nations as well, making them all recklessly bold characters in defiance of convention. But, it happened. Stripped naked by the US government, GM even got delisted. Ford fell too. Only, it needed no foodpack from the government to survive. AIG, a one time pride of insurance-loving America became a $170 billion headache for taxpayers when 2008 ended. Its books got laden with a loss of $99.3 billion in FY2008 alone. The following year, it lost another $10.3 billion. Then there was Citigroup – the hero of America’s private banking revolution. After recording $127.56 billion in bottomlines since the turn of the century till FY2007, the company delivered two consecutive years of losses until FY2009 ($29.28 billion). None of these companies found a place in the list of America’s 100 most profitable companies list for FY2009.

Ashamed & dethroned. But the pendulum has swung back, saving these companies a lifetime at the museum. Going by this year’s B&E US Power 100 list (FY2010), these very fallen angels are back. GM features on #27 (profit of $6.17 billion), Ford on #25 ($6.56 billion), AIG on #22 ($7.79 billion) & Citi on #17 ($10.60 billion). And unlike last time, this time around, they are back to defy the theorem of “sustainable loss-making”. That they have crawled back is good news, but the reverse can occur as fast. History does repeat. This oscillating bob is therefore ‘the’ concern for all profit-making powerhouses today.

How impressive is 80% as an indicator to a trend? Quite. If compared to a similar list prepared fifty years back, 80% of the names that appeared on this year’s America’s 100 most profitable list are new. This implies, on an average, every decade, 16 companies on the list are replaced by new ones. Digestable? Not if you understand how the dynamics of the current globalised scenario is bringing new names to the fore, faster than ever before. As per the 2011 B&E US Power 100 list, compared to a decade back, 56 new companies have knocked-off as many names from the ranking – much higher (and dangerously so for existing names) than the average replacement rate. This brings a new question to the front – how sustainable are the current profit-making schemes of the top names on the 2011 B&E US Power 100 list? Will the top names in the list retain their places when we repeat this exercise next year? And a decade later, can we imagine a new dominant #1 or will oil companies continue to flash? Many questions, one answer – read on.

The last time Exxon Mobil (#1 in our most profitable list for FY2010) lost the top spot to a player was in FY2002, when Citigroup walked away with the top honours. Exxon was #3 that year with a bottomline of $11.5 billion, while the #1 Citi and #2 GE reported figures of $15.3 billion & $14.1 billion respectively. Exxon’s profits faced immense pressure post the 9/11 attack and the downturn that affected capital investments of various companies. Reason – despite an increase in input costs during the late 2001-early 2003 period, the price of oil oscillated minimally between the $18.00 and $18.70 per barrel. But FY2010 saw the company record $30.46 billion in net profits (a 58% increase y-o-y). And despite pressures from political and environmental groups, the company is expected to continue playing the magic flute when it comes to delighting those who believe in windfall profits. Save the investors (rather than the environment) is Rex Tillerson’s (CEO & Chairman of Exxon) motto. After many quarters of being forced (and criticised) by the Obama administration to invest in non-fossil fuels, Tillerson gave-in in early 2010. His investment – $1 billion in algae fuel. Sounds substantial. But the investment amounts to just 0.28% of the company’s total topline ($354.67 billion in FY2010). Having said this, with oil prices touching newer highs (the highest being $113.93 on April 29, 2011; NYMEX) Exxon continues to be the undoubted favourite for the top spot for FY2011. Exxon’s profits are helped by rising crude prices, and with activities and investments of companies this year on a high, expect a bigger than ever FY2011 (during FY2010, crude ranged between $68 & $89 – much lower than the average price of $98.97, between January 1, 2011 and June 17, 2011; B&E research). Currently, besides being the world’s largest producer of crude oil and natural gas, Exxon is the largest refiner, with total output of 6.3 million barrels per day – that is 11593 litre produced per second. Exxon’s huge bottomlines during the past have also been helped by its geographically diversified refining system, with many of its refineries being counted amongst the lowest-cost, largest and most sophisticated in their regions.

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