Company Profits

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<img src="https://counter.theconversation.edu.au/content/57114/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Companies could improve their profits by 2-10 percent each year by saving energy. That’s just one of the findings of ClimateWorks Australia’s Energy Productivity Index, a world-first attempt to assess companies' energy performance and help investors make better decisions.
Investors are increasingly engaging with companies to address the risks associated with climate change. Extreme weather events, carbon-intensive assets and greenhouse gas emissions are becoming part of a routine risk assessment on the impact of a company’s profitability.
While a company’s energy use can have a significant impact on its bottom line and environmental credentials, energy productivity and efficiency have traditionally been difficult for investors to assess. This is mainly due to a lack of tools to measure and assess energy use and poor levels of disclosure by companies.
My colleagues and I have developed a guide to help investors figure out how potential investments are performing. We assessed 70 companies across six industrial sectors: airlines, automobiles, paper, steel, chemicals and construction.
<h2>Saving energy …</h2>
Many industrial companies spend a huge part of their operating expenditure on energy – typically more than 15 percent.
Energy productivity generally refers to the amount of revenue per unit of energy, so improving energy productivity can greatly improve a business’s investment value.
We found that more than 70% of the companies analysed have significant room for improvement in their energy use. Even more startling is the wide variation between companies in the same sector.
In some sectors, the leaders are achieving energy productivity levels up to five times the levels of poorer performers.
For example, in the automobile sector, Toyota produces eight times more vehicles per gigajoule of energy used than the least productive company, Daimler.
<h2>… making money</h2>
We also found that improving energy efficiency (by using less energy) could significantly boost a company’s profit. Of all the sectors analysed, airline companies reported the largest savings.
United Continental reported annual savings of US$343 million in 2014. This was achieved through initiatives that reduce fuel use, such as improved flight planning, replacing old planes, washing engines and installing winglets.
And despite operating in an energy-intensive sector, steel company Arcelor Mittal achieved almost US$200 million in energy savings in 2014.
The analysis also shows that one-third of the companies analysed could boost their profit margins by more than 5% a year if they matched the performance of leaders in their sector.
Even accounting for upfront capital costs needed to achieve best practice, energy efficiency can still increase profits by 2-10% each year. Most energy initiatives could be paid off in less than three years.
Even a 2% improvement in profits for companies in the automobile sector would be equal to about US$100 million. To achieve an equivalent increase in profits from revenue growth, a company would need to sell an extra 90,000 cars each year.
<h2>Ranking companies</h2>
Several factors affect a company’s energy performance. We looked at three:
<ul>
<li>
Resilience to energy costs measured through how much a company spends on energy and its profitability. A company that spends less on energy and has greater profitability is more resilient to changes in energy prices.
</li>
<li>
Energy productivity measured by a company’s current ability to generate revenue or increase its production per unit of energy used.
</li>
<li>
Energy efficiency measured by a company’s efforts in identifying and implementing energy savings. We included the extra financial gain of a company matching the energy efficiency of leading performers.
</li>
</ul>
While we were able to rank many companies, we found that many others are not disclosing sufficient data on energy use to be assessed. Of 181 companies that reported in the six sectors analysed, 73 had incomplete or insufficient data for benchmarking. Much improvement is needed on data availability and data quality.
<h2>The global goal</h2>
While improving energy performance may be great for the bottom line, there’s another big reason energy use is so important. According to the International Energy Agency, energy-efficiency gains could achieve about 40 percent of the emissions reductions required by 2050 to limit global warming to less than 2℃.
Engaging with companies in their portfolios to improve their energy productivity is a measurable and profitable way to reduce emissions and avoid dangerous climate change.
Improving energy productivity has benefits not just for those investors and companies directly involved, but for all of us.
Wei Sue is business analyst, ClimateWorks Australia, Monash University and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/wei-sue-269412" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

Reducing energy use is a big winner for business and the climate

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The multi-unit apartment and townhouse construction industry has reached record highs over the past five years, however, volatile conditions have led to mixed results for many construction firms according to IBISWorld's Top 500 Private Companies list for 2016.
Anthony Kelly, IBISWorld senior industry analyst said construction features prominently in IBISWorld’s Top 500 Private Companies list for 2016, with the list featuring 57 construction companies, including three companies in the top 20: BGC, Meriton Apartments and Hutchinson Builders.
He said year-on-year revenue growth for the 57 listed construction companies varied widely, from growth of 327.5 percent to a decline of 49.1 percent, reflecting a tumultuous year in construction.
“Despite the industry’s bright outlook, revenue is expected to slump by 17.3% over the current year as investors hold off on new developments to allow recently added stock to be absorbed,” he said. 
“Recent additions of new apartment stock have exceeded immediate housing requirements, and vacancy rates have climbed in several major markets, particularly in Melbourne and Brisbane. The decline in activity also reflects the anticipated completion of several major projects during 2016-17.
"Multi-unit residential commencements are forecast to surge from 2019-20 onwards as more projects are brought to the start-up phase. Foreign investment in apartment developments, particularly from investors in China, Singapore and Hong Kong, is likely to support this growth.
 “The Australian market is expected to remain attractive for foreign investors, especially as the value of the Australian dollar is anticipated to remain low.
The top five private construction companies for growth in this year’s list include Central Equity, Lipman, Mainbrace Constructions, Pellicano Builders and Burbank Australia, which have displayed revenue growth of between 327.5 percent and 51.8 percent over the past year.
According to the report, apartments have captured an increasing share of total residential building commencements over the past five years, particularly for inner-city multistorey apartment complexes. These projects are expected to make up 39.7 percent, or $6.9 billion, of the industry’s total revenue of $17.4 billion in 2016-17.
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jonathanchancellor-7SQnKwU6yx

Property 101: Surging apartment construction is driving growth across multiple states 

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The REA Group, parent group of realestate.com.au, posted double-digit rises in net profit and revenue for the year ended June 30.
“The revenue growth was driven by a 14% increase in Australia and the inclusion of iProperty revenue for the full year.
"The excellent result in Australia was achieved in a market of lower residential listing volumes and a significant decline in new dwelling commencements,” it said in an ASX announcement.
The group’s net profit rose 12 percent to $228.3 million during the period, while revenue grew 16 percent to $671.2 million.
“In Australia, we have extended our position as the clear market leader, with our audience growth reaching record highs against our nearest competitor,” said REA Group CEO, Tracey Fellows.
“We continue to diversify our business and deepen consumer engagement across the property journey. The most significant and exciting has been our move into financial services, through our partnership with NAB and our acquisition of the broking business, Smartline.”
Realestate.com.au acquired an <a href="https://www.urban.com.au/news/72322-realestate-com-au-and-domain-com-au-launching-home-loan-broking-services" target="_blank">80% controlling stake</a> in mortgage broking franchise Smartline. Earlier, it had announced a partnership with NAB to building a realestate.com.au-branded mortgage broking business for launch later this year.
<a href="https://www.propertyobserver.com.au/images/2017/08/11/REA.png" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/08/11/REA.png" alt="">
The REA Group is majority owned by News Corp.
REA Group operates realestate.com.au, realcommercial.com.au, and Flatmates.com.au. 
Its Australian revenue grew by 14% to $633.5 million, while agent numbers rose by 5% on the prior corresponding period, it said. 
It said realestate.com.au continued to be the number one property site in the country, with the largest and most engaged audience of property seekers. 
Average monthly visits to realestate.com.au grew 13% and were more than over 2.5 times than that of the number two site, it said.
“Australia’s listing depth revenue increased 18% to $481.8m. This was driven by the success of our residential Premiere All offering and increased yield, despite the decrease in listing volumes,” it said.
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REA Group's Australian revenue up 14% despite fall in listings and lower housing starts

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EXPERT OBSERVER
Do you distrust the companies that profit from the goods and services you buy? Research suggests most of us do.
Justin Welby, the archbishop of Canterbury, made headlines in the U.K. recently for <a href="https://www.archbishopofcanterbury.org/speaking-and-writing/speeches/archbishop-canterburys-speech-tuc" target="_blank">his speech</a> at the Trades Union Congress conference in Manchester, England.
His remarks were forcefully pro-union and strongly disapproving of corporations, the profit motive and the wealthy.
He singled out Amazon for not paying their fair share of taxes in the U.K. and the gig economy as a “reincarnation of an ancient evil.”
To the archbishop, capitalism, with its pursuit of profit and inequality of outcomes, is inherently immoral.
Other religious leaders have, over the years, made similar points. In 2015, Pope Francis <a href="https://nationalpost.com/news/world/dung-of-the-devil-pope-francis-denounces-capitalism-greed-and-the-pursuit-of-money" target="_blank">denounced capitalism</a> and the pursuit of money and, in 2008, the then-archbishop of Canterbury, Rowan Williams, wrote an article for a British magazine <a href="https://blogs.spectator.co.uk/2012/03/from-the-archives-rowan-williams-on-capitalism-and-idolatry/" target="_blank">criticizing capitalism</a> in the wake of the financial crisis.
Such negative views of business and profit are hardly uncommon.
A recent article in the Journal of Personality and Social Psychology documented widespread <a href="http://psycnet.apa.org/fulltext/2017-31434-001" target="_blank">anti-profit beliefs</a>.
In my research with some of my graduate students, I have found that people often take a dim view of businesses, interpreting many different actions —such as a <a href="http://acrwebsite.org/volumes/1010014/volumes/v39/NA-39" target="_blank">small price increase</a> or a <a href="http://tinyurl.com/ybptgtra" target="_blank">product recommendation</a> — as an attempt to take advantage of consumers.
<h2>Viewed as conscious entities</h2>
But what underlies these views? Why is business and the pursuit of profit so maligned?
We think the answer lies, in part, in how people view firms and the resulting inferences they draw from the attempts of these firms to make a profit. To the first point, people seem to view companies as conscious entities — as living, breathing organisms with thoughts, feelings, intentions and motives.
<a href="https://opinionator.blogs.nytimes.com/2015/06/15/do-corporations-have-minds/" target="_blank">Research using functional magnetic resonance imaging (fMRI) scanners</a> has found that patterns of neural responses when considering other people’s mental states (<a href="https://www.psychologytoday.com/ca/blog/socioemotional-success/201707/theory-mind-understanding-others-in-social-world" target="_blank">the parts of the brain involved in “theory of mind”</a>) are indistinguishable from the pattern of responses when considering the behaviour of organizations.
What this means is that people are likely to attribute distinctly human motives to business actions that are the product of entirely different processes.
In addition to viewing companies as people, consumers often view their transactions with firms as zero-sum — like sharing a pie, where more for one person means less for the other. This means that when companies are perceived to be making a profit, that profit is viewed as coming at the expense of customers.
<h2>Distrust of profitable firms</h2>
This is where profiting becomes problematic. Because we mentally view firms as people, this is seen as a wilful act — a deliberate attempt to take advantage of customers — and it violates an important norm of interpersonal conduct, a moral norm even, that forbids benefiting at another’s expense.
We have found that a wide range of actions by businesses appears to be interpreted in this light: price increases, <a href="https://www.sciencedirect.com/science/article/pii/S002243591100090X" target="_blank">discounts for other people</a>, product recommendations and even advertisements.
Even when people don’t buy goods or services from a company, and therefore no profit is made, perceptions that a firm tried to profit lead to negative responses.
<h2>Even sales clerks are suspect</h2>
In one extreme example, we found that even when a salesperson recommended the cheaper of two alternatives, customers still assumed it was to benefit at their expense.
Our research has not yet investigated how firms can mitigate such reactions or whether they even can. If our results are anything to go by, some readers may think that these are legitimate reactions that should not be curtailed.
However, we would point out that a purchase is a consumer decision. No company is forcing consumers to buy their products against their will.
What’s more, businesses bear the burden of the risk in offering products for consumers’ consideration; the products that they make available to us are often a tremendous source of value in our lives; and, ultimately, the only reason companies develop and offer such products is to make a profit. Otherwise, what would be the point of going into business?<img src="https://counter.theconversation.com/content/103977/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/laurence-ashworth-559676" target="_blank">Laurence Ashworth</a>, Associate Professor, Marketing, <a href="http://theconversation.com/institutions/queens-university-ontario-1154" target="_blank">Queen's University, Ontario</a>.
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/why-we-think-businesses-are-out-to-get-us-103977" target="_blank">original article</a>.
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jrobinson-rf4aSBido9

Most of us dislike companies making a profit from us: Laurence Ashworth

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Lendlease saw its half yearly profits drop 96.3% to $15.7 million when it released its financials to the ASX this morning.
Its share price went in a similar direction, dropping nearly ¢60 a share.
When the markets opened shares dropped from $14.14 per share to $13.50. The share price has rebounded somewhat late morning to $13.88 per share.
Revenue for the six months to December 31 dipped 11 percent to $7.68 billion, with the $350 million hit cutting profit from $425.7 million a year earlier.
The decline in profits was in majority down to its engineering arm. 
Steve McCann, chief executive and managing director at Lendlease, reiterated his disappointment with the previously announced underperformance of the company's engineering business.
“This was a difficult period where cumulative issues in a number of engineering projects materially impacted the Group’s overall result," McCann said.
"The management team and I are very disappointed with this underperformance and are committed to working to restore securityholder value and confidence in Lendlease.
A review of Engineering and Services has determined the business is non-core, and is no longer a required part of the Lendlease's strategy.
Alternatives for the business are being considered, however restructuring the overall business could cost between $450 million and $550 million before tax, Lendlease said.
McCann said despite a challenging period, LendLease's development pipeline is still growing.
"Despite a challenging period, Lendlease continued to convert origination opportunities in global gateway cities – growing our development pipeline and successfully executing key initiatives with our capital partners,” McCann said.
“We’re starting to see tangible results from broadening our urbanisation platform to additional international gateway cities with the first significant contributions in the half from our projects in Asia and the Americas. 
Lendlease added two new major urbanisation projects to its pipeline – Victoria Cross in Sydney, and Lakeshore East in Chicago. 
The two projects combined have an estimated end development value of more than $3 billion.
 
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