Vous êtes sur la page 1sur 12

FTSE 350 COMMODITy ExPOSuRE InDEx

ExECuTIvE SuMMARy Many FTSE 350 companies have seen their margins hit by sharp rises in raw material costs, prompting a number of profit warnings during 2011. A recent study by Ernst & young reported that rising raw material prices were behind 29% of profit warnings issued by uK-listed companies in 2011. Meanwhile, the World Bank and OECD have called for a sharp rise in water prices to help manage water as a finite resource. Trucost has been analysing resource efficiency across the value chains of major companies for over 10 years. In partnership with Green Monday, Trucost looked at which sectors would be most disrupted by further increases in oil, coal, wheat and cotton prices, as well as by water pricing that reflects resource scarcity. Trucost benchmarked 186 FTSE 350 companies on profit risk from the costs of oil, coal, wheat and cotton embedded in supply chains, and ranked them by sector to create a Commodity Exposure Index. Findings show a wide variation in the level of exposure between sectors, but on average, a 10% change in the price of each of these commodities equates to a 2% change in earnings before interest, taxation, depreciation and amortisation (EBITDA). P4 The top five most exposed sectors are Food Producers, Electricity, Gas Water & Multiutilities, Chemicals and Beverages. On average across these sectors, a 10% change in commodity costs equates to 6% of earnings. Companies are unlikely to be able to pass on all of these costs to end customers in the current economic climate. P5 Of the 26 sectors analysed, Food Producers are most exposed a 10% rise in commodity prices equates to 13% of EBITDA. With current and expected future volatility in wheat and other prices, this is clearly a major strategic issue for the sector. P5 For many sectors, water will become an increasingly important issue over the coming years. Our analysis shows that if water embedded in supply chains were priced to reflect the scarcity of supplies, water costs would present an even more significant risk to bottom lines than the other commodities analysed. If all water used by suppliers were priced at US$1.13 per cubic metre (see P2), water costs would account for a larger share of EBITDA than oil, coal, wheat and cotton combined in 21 sectors. P6/7 Exposure to commodity and water scarcity costs varies most for companies in the Food Producers, Food & Drug Retailers and General Industrials sectors. Whether through pricing or scarcity, pressure on water resources will increasingly affect the pricing of key commodities such as wheat and cotton, hitting Food Producers most. Companies that have more resource-intensive supply chains than sector peers could face above-average financial risk from increasingly volatile and rising raw material prices. Companies in sectors with the greatest variations in exposure to commodity costs stand to gain most from becoming more resource efficient than competitors. Those less dependent on resources to generate earnings will be more stable financially. P8 Companies can engage suppliers on resource use to help develop more effective, efficient and secure value chains and manage financial risk from volatile commodity costs. Firms can also diversify supply chains, increase local sourcing, develop closer relationships with suppliers, or vertically integrate upstream activities. Water scarcity costs can be used as a shadow price for water to evaluate future Capex and procurement proposals, taking account of water stress in certain areas. Firms that redesign business models, value chains, products and services to optimise resource use can develop more resilient supply chains and gain first mover advantage. P9

October 2011

RESEARCh AnD AnAlySIS

liesel van Ast, Steven Bullock, Alastair MacGregor


COnTACT TRuCOST

Sarah Wainwright

Trucost Plc +44 (0)20 7160 9800 info@trucost.com


COnTACT GREEn MOnDAy

Georgie vere nicoll

Green Monday +44 (0)20 3137 1728 georgie.verenicoll @greenmondays.com

www.trucost.com

www.greenmondays.com

FTSE 350 Commodity Exposure Index


FORWARD By GREEn MOnDAy Evidence is growing of a fundamental shift in the trajectory of commodity prices, with profound implications for how companies work with supply chains. While commodity prices have fluctuated during the past two months, the broader trend of rising prices remains startling. Since 2002, commodity prices have risen by 202%,1 and other recent indicators show: 29% of profits warnings issued by UK-listed companies in 2011 have been due to rising commodity prices.2 UK food price inflation was 6% in August 2011, despite the sluggish economy. Global commodity prices have risen by 33% in the past 18 months.3

Is this change structural or cyclical? Jeremy Grantham, widely followed by investors as a picker of bubble markets, is among commentators pointing to a paradigm shift.4 The co-founder of GMO, a US$150 billion investment fund, has argued that rising resource prices, fuelled by population growth, climate change and growing prosperity, is perhaps the most important economic event since the Industrial Revolution.

Companies that decouple supply chains from rising commodity prices will create better margins.

Paradigm shifts generate changes in business models. Companies that are able to decouple their supply chains from rising commodity prices will create better margins than slower-to-respond competitors. Companies which are engaging their supply chains, financing efficiencies and sharing technologies, such as Siemens and PepsiCo, will prosper. Supply chain management will take an increasingly active role in identifying and addressing resource price risks and opportunities. With this in mind, Green Monday has partnered with Trucost to create an Index that measures the exposure of different sectors to the key commodities of oil, coal, wheat, cotton and water. It has been a complex piece of work, requiring many levels of data going through supply chains, and we believe it tells a story that has been untold to date. We are grateful to Trucost for its work, and we hope the findings are valuable for management teams and investors alike.

Jim Woods Director of Content, Green Monday

SCOPE OF AnAlySIS This study seeks to identify FTSE 350 sectors most exposed to costs that may show volatility in supply chains. Data on FTSE 350 companies were analysed to identify the potential sensitivity of different sectors to rising commodity prices. The analysis of short- to medium-term risks is based on Trucosts calculations of use of cotton, wheat, oil and coal in supply chains. Data on commodity prices for 2010 from The World Bank were used to calculate exposure to rising costs (see P3). A 10% increase in the price of each commodity was applied to quantitative data on amounts of oil, coal, wheat and cotton estimated to be used in the supply chains of companies in each sector, based on Trucosts data. The forward-looking analysis factors in potential water costs as a future commodity risk. Trucost analysed the potential increase in commodity costs if the price of water embedded in supply chains was adjusted for water scarcity issues. The water scarcity price is based on Trucosts review of literature matching pricing with scarcity at various locations, excluding infrastructure or supply costs. The mean average global water scarcity price of US$1.13 per cubic metre (m3) was applied to estimated quantities of each companys global indirect water use. Actual company use of commodities and water is likely to vary from estimates depending on factors such as resource efficiency. Price fluctuations and the varied abilities of companies to control rising input costs and pass them on are not reflected in estimates. However, the analysis provides a starting point to develop an understanding of which sectors could be most sensitive to rising commodity prices. Companies analysed are categorised in sectors based on the Industry Classification Benchmark (ICB) system used by the FTSE Index. The study excludes companies in the Financials and Oil & Gas ICB industries, as well as those in the Basic Resources supersector. Although Financials may have significant commodity investment exposure, this is difficult to extrapolate from publicly available information, therefore any conclusions drawn with respect to their risk from direct and relatively low resource use would be potentially misleading. Companies in the Basic Resources and Oil & Gas sectors will generally be net beneficiaries of rising commodity prices even when these increase their material input costs. While Trucost is able to analyse these factors and can conduct resource net benefit analysis based on the pricing power of different sectors, doing so is outside of the scope of this analysis. This study focuses solely on the impact on companies costs. Excluding the three sectors, as well as eight companies that had negative earnings, the research covers 186 companies in the FTSE 350 (see Appendix 1). To find out more about Trucosts methodology, see Appendix 2.

Index Mundi Commodity Price Index, Dec 2002 Aug 2011, includes both Fuel and Non-Fuel Price Indices

Ernst & Young, Analysis of profit warnings issued by UK quoted companies, Q2 2011 Index Mundi Commodity Price Index, Feb 2010 Aug 2011, includes both Fuel and Non-Fuel Price Indices Grantham, J., Time to Wake Up; Days of Abundant Resources and Falling Prices are Over Forever, Quarterly Letter, April 2011

www.greenmondays.com

www.trucost.com

FTSE 350 Commodity Exposure Index


ThE PERFECT STORM? RISInG COMMODITy PRICES COInCIDE WITh WEAKER DEMAnD Many listed companies in sectors ranging from Food & Beverage to Travel & Leisure are being caught between higher input costs and cash-strapped customers. Wheat prices have jumped 70% since June 2010 due to droughts in several countries, and cotton prices surged after storms in the U.S. and floods in Asia reduced yields. Growing price volatility and above-inflation cost increases are putting pressure on operating margins for many companies in the FTSE 350 Index. Companies in industries where demand is weak, such as the retailer Carpetright Plc, are struggling to pass on higher input costs as they turn to competitive pricing to maintain sales. Even firms enjoying strong demand and good pricing power have struggled to stay profitable since the speed of the surge in input costs means there is a lag before they pass these on to their customers. Cranswick Plc was among food producers that saw significant raw material price inflation lower operating margin during the first half of 2011, despite higher revenue.5 When Cranswick released a trading statement in July to cut profit forecasts, its share price tumbled by more than 10%. And more inflationary pressure is in store the Organisation for Economic Co-operation and Development (OECD) forecasts that prices could rise by 20% for cereals and 30% for meats between 2011 and 2020, compared to the last decade.6 Food price inflation is contributing to economic uncertainties and food insecurity, which has catalysed political instability in the Middle East and North Africa. This has added to pressure on fuel supplies driven by greater demand from emerging markets, which caused oil prices to almost double since the start of 2009.7 Although the West Texas Intermediate crude oil price fell from a high of US$113 a barrel in April to US$88/bbl in September,8 prices remain higher than during the two-year period to November 2010 and threaten to weaken global economic growth.9 Industrial firms able to raise prices are also being hit; sharp sales price rises at paper and packaging firm Mondi Group Plc were not enough to offset rising input costs and return the companys Aylesbury newsprint business to profitability in the first six months of 2011.10 Firms that have been able to pass on higher input costs to customers until now are uncertain of their ability to keep doing so, as falling consumer confidence affects spending. Although easyJet Plc largely managed to pass on a rise in jet fuel prices above US$150 per tonne,11 it has warned of future customer sensitivity to escalating energy costs. World Bank data show that even before the price hikes seen this year, oil, coal, wheat and cotton prices rose by between 25% and 244% between 1990 and 2010. Table 1 below shows the rise in prices of the commodities over the 20-year period.

Table 1: Commodity prices (uS Dollars)


Commodity
Coal, Australian
5

Unit
$/mt $/bbl $/mt /kg

1990
40 23 136 182

2000
26 28 114 130

2010
99 79 224 228

Cranswick Trading Statement, First Quarter Trading Update, 26 July 2011 Agricultural Outlook 2011-2020, Organisation for Economic Co-operation and DevelopmentFood and Agriculture Organization FactSet, 8 September 2011 Oil Market Report, IEA, 10 August 2011

Crude oil, avg, spot Wheat, US, HRW Cotton A Index

Source: World Bank, Economic Policy and Prospects Group12

IEA report looks at oil, gas market prospects through 2016, International Energy Agency news release, 16 June 2011 Mondi Group, Half-yearly report 2011

10

11

http://www.bloomberg.com/apps/ quote?ticker=JET1NECC:IND, last accessed 27 September 2011 http://econ.worldbank.org/WBSITE/ EXTERNAL/EXTDEC/EXTDECPROSPECTS/0,,c ontentMDK:21574907~menuPK:7859231~pag ePK:64165401~piPK:64165026~theSitePK:476 883,00.html, last accessed 27 September 2011 World Trade Report 2010, Trade in natural resources, World Trade Organization, 2010 Resource Limitations 2: Separating the Dangerous from the Merely Serious, GMO Quarterly Letter, July 2011 Global Water Intelligence, Water tariffs continue upward momentum, September 2010 http://www.oecd.org/document/31/0,3746, en_2649_37465_45799583_1_1_1_37465,00. html, last accessed 27 September 2011 Experts call for hike in global water price, guardian.co.uk, 27 April 2010

The World Trade Organisation has highlighted economic growth in emerging economies, limits to production capacity in the short run and the relative prices of resource substitutes as market forces contributing to price volatility. It says the imperfections in some natural resource markets raise questions about the efficiency of production.13 Prices based on short-term supply and demand create a market failure that allows problems to build up over decades and hurt market-based economies that are unprepared for collective resource depletion.14 Market failure is particularly reflected in water pricing, which does not accurately reflect water scarcity. Global water and wastewater tariffs rose by 8.5% on average between 2008 and 2010,15 but increases in water bills over the past decade have mainly covered the costs of environmentally-sound treatment and disposal of wastewater.16 Further rises in water charges are vital to encourage more efficient use and investment in water infrastructure. The World Bank and OECD have called for substantial increases in water prices so that households and industry pay the true cost of the water they consume to help manage water as a finite resource.17

12

13

14

15

16

17

www.trucost.com

www.greenmondays.com

FTSE 350 Commodity Exposure Index


COMMODITy ExPOSuRE InDEx Trucost benchmarked 186 FTSE 350 companies in 26 ICB sectors on average profit risk from the costs of oil, coal, wheat and cotton. Market prices were applied to modelled quantities of each resource used in supply chains. Data on companies in each sector were used to calculate the potential effect of a 10% increase in commodity costs on earnings before interest, taxation, depreciation and amortisation (EBITDA), excluding eight companies with negative EBITDA. On average, a 10% increase in the prices of oil, coal, wheat and cotton used in supply chains could cause EBITDA to fall by 2% across the Index. Exposure to inflationary pressures varies for each commodity and sector (see Chart 1). Some costs could be passed on to other sectors and consumers. However, more volatile and rising prices will increasingly affect profitability for some companies as they compete with sector peers that have less resource-intensive supply chains and are better able to control input costs.

Chart 1: Sector ranking on average change in earnings with a 10% increase in


commodity prices

A 10% rise in the prices of oil, coal, wheat and cotton used in supply chains could cause earnings to fall by up to 13% on average at a sector level.

www.greenmondays.com

www.trucost.com

FTSE 350 Commodity Exposure Index


Food Producers with a limited ability to pass through rising input costs could see profits fall by 13% on average. Companies in the Electricity, Gas, Water & Multiutilities, Chemicals and Beverages sectors are also relatively sensitive to rising commodity prices. A 10% change in commodity costs equates to 6% of earnings on average across the top five sectors. Profits could be most exposed to oil price rises in the Gas, Water & Multiutilities, Chemicals and General Industrial sectors. Oil price inelasticity of demand, growing demand in non-OECD countries and persistent supply-side risks are likely to sustain high oil prices in the medium term.18 Oil futures are trading at more than US$92/bbl for settlement from late 2012 onwards.19 Oil prices could rise further if at least a share of fossil-fuel subsidies totalling more than US$300 billion globally in 2009 are dropped, as pledged by G20 countries.20 In the Utilities sector, absolute exposure to oil prices through supply chains is likely to be higher for natural gas distribution companies than electricity distributors, power generators or water and waste utilities analysed. However, International Power Plc plans to expand its capacity to generate electricity from oil from 2% to 4%.21 Earnings are also at risk from rising oil prices in the Travel & Leisure sector. A US$50/tonne rise in the price of jet fuel could shave 7 million off easyJets pre-tax profit.22 It is one of several companies increasingly hedging cost positions to manage input inflation and limit uncertainty. However, greater price volatility could make hedging risky if buyers are locked into higher prices. Higher coal prices have also bumped up energy costs. Coal prices have risen from US$25 per tonne in the 1990s to more than US$120/tonne.23 Severe weather in countries including Australia damaged infrastructure and cut supplies earlier this year, causing prices to reach a two-year high. Suppliers might absorb some of the rising costs of raw materials, but a share will flow through in higher prices. Rising coal prices have increased costs for electricity producers such as Drax Group Plc,24 and rising coal costs passed on by suppliers could also cause earnings to fall in the General Industrials and Automobiles & Parts sectors. As expected, higher wheat prices would be most significant for Food Producers, Beverages companies and Food & Drug Retailers. Rising wheat prices pushed pig prices up 15%,25 adding pressure on companies such as Cranswick. Cranswick supplies pork to the retailer J Sainsbury Plc, which improved efficiency to offset cost inflation in 2010. However, Sainsburys expects that cost savings will not be enough to fully offset expected inflation in 2011/12.26 Exposure to rising cotton prices is greatest in the Personal Goods sector. Higher cotton costs passed on by Personal Goods companies could add pressure on the margins of General Retailers. Steeper cotton prices caused a drop in retail sales at next Plc, which warned of a worsening outlook for clothing prices this autumn/winter due to record cotton prices. Price hikes of some 6% were not enough to fully recover an 8% increase in Nexts input costs, and the retailer expects the cost price inflation rate of 8% to continue in the second half of 2011.27 Increased raw material prices can raise the value of inventories. Companies can enter long-term contracts or increase inventories to fix raw material costs. However, this feeds further price volatility as it increases demand in the short term.28 The trend towards replacing long-term supply contracts with trading on organised exchanges could reverse to improve transparency and accountability. WATER: ThE hIDDEn COMMODITy COST The rising prices of commodities traded on exchanges and their visible impact on profit warnings has put a spotlight on resource use in the supply chains of many FTSE 350 companies. However, few have turned their attention to water as a commodity risk. Water tariffs can be complex and the costs of using water inefficiently are hidden and embedded in supply chains. Agriculture accounts for more than 70% of global water withdrawals, and agricultural demand is set to grow as food production is expanded by some 70% to feed an expected nine billion people by 2050.29 Water is often withdrawn most unsustainably from significant food-producing areas such as the southwestern United States, the Murray Darling basin in Australia and the Punjab region of India.30 In China, persistent drought affecting huge areas of grain-producing regions in the north is putting upward pressure on wheat prices.31 However, water tariffs do not reflect the scarcity of resources in countries including China,32 where water is priced at some US$0.31 per cubic metre (m3).33 Globally, irrigation charges or tariffs for municipal supplies range from less than 0.1 cents/m3 for agricultural users in Romania and Canada to US$1.30/m3 in Holland.34 Competition between agricultural, industry, energy and household users is increasing, and industrial use is expected to grow from 16% to 22% of global demand by 2030.35 Urban water tariffs vary significantly across countries, with average global water prices across 265 cities amounting to US$2.42/m3 in 2009.36 The need to stabilise prices for domestic and agricultural users may add pressure on industry to carry a greater share of cost recovery for infrastructure and efficiency measures to help close the gap between supply and demand.

18

Medium-term Oil & Gas Markets 2011, Overview, International Energy Agency FactSet, 8 September 2011

19

20

http://www.iea.org/weo/docs/weo2010/ factsheets.pdf, last accessed 27 September 2011 International Power, Annual Report 2010

21

22

easyJet Interim Management Statement, 22 July 2011 Adaro executives enjoy rise in coal demand, Financial Times, 5 July 2011 Drax Group Plc, Half Year Report 2011

23

24

25

Rising pig prices hit Cranswick, Financial Times, 26 July 2011 Financial Review 2011, J Sainsbury Plc

26

27

Next Plc, Trading Statement, First Half Sales, 3 August 2011 Pindyck R.S. Volatility and Commodity Price Dynamics, The Journal of Futures Markets, Vol. 24, No. 11, pp. 10291047, 2004 UNEP International Water Management , Institute, Ecosystems for water and food security, 2011 http://www.oecd.org/document/31/0,3746,en_ 2649_37465_45799583_1_1_1_37465,00.html

28

29

30

31

China to spend US$1bn to battle drought; Gov.cn (official Chinese government website), 10 February 2011 Low water prices must be revised, China Daily, 27 May 2011 China Cities Raise Water Price in Bid to Conserve, The Wall Street Journal, 31 July 2009 http://www.fao.org/docrep/008/y5690e/ y5690e02.htm, last accessed 27 September 2011 2030 Water Resources Group (2009) Charting our Water Future, Economic frameworks to inform decision-making Excluding wastewater tariffs, Global Water Intelligence

32

33

34

35

36

www.trucost.com

www.greenmondays.com

FTSE 350 Commodity Exposure Index


Trucost calculated the potential increase in commodity costs for FTSE 350 companies if water used in supply chains were priced to reflect scarcity, using the adjusted global average water scarcity price of US$1.13 per cubic metre (m3). Estimated exposure to water costs only takes account of quantities of water used in supply chains. Water costs are measured relative to estimated commodity costs for each company, including the 10% price rise. Pricing water used in the supply chains of the FTSE 350 companies at US$1.13/m3 could raise commodity costs by a further 140% on average. Although actual water prices would vary geographically and Government subsidies are likely to help contain tariff hikes, the analysis shows that some sectors could be significantly exposed to any increase in water costs. Input costs would increase most relative to commodity costs for the Tobacco, Food Producers, Food & Drug Retailers, Personal Goods and General Retailers sectors, as shown in Chart 2. Water scarcity costs could have a bigger impact on earnings than the combined costs of oil, coal, wheat and cotton in 21 sectors.

Chart 2: Sector ranking on average change in earnings if commodity prices rise by


10% and include water scarcity pricing*

Pricing water at US$1.13/m3 could cause commodity costs to more than double.

www.greenmondays.com

www.trucost.com

FTSE 350 Commodity Exposure Index


Given the financial exposure of Food Producers to a rise in commodity costs, more sustainable and efficient water pricing could cause earnings in the sector to fall significantly. In the short term, water scarcity costs are more likely to be incurred through falls in food production in areas with greater pressure on water resources than through water pricing that reflects the availability of supplies, with knock-on effects on food prices. For instance, water scarcity contributed to sudden and largely unanticipated food price increases in 2006/07.37 Water is among environmental measures that unilever Plc, in the Food Producing sector, regards as most significant, alongside carbon dioxide from energy use and waste generation. Two-thirds of the raw materials Unilever buys come from agriculture, and changing weather patterns and water scarcity are among threats to the long-term viability of agricultural production highlighted in its Annual Report and Accounts 2010.38 Unilever also recognises the risk that failure to design resource-efficient products with lower environmental footprints could damage its reputation and therefore long-term cash flow, revenue and profitability. Food Producers such as Dairy Crest Plc are also exposed to higher fuel costs, which increase fertiliser, packaging and distribution costs. The dairy foods company expects commodity input costs to keep rising, with vegetable oil, fuel and packaging forecast to be around 25 million higher in 2011/12 than in 2010/11.39 Tobacco and Beverages companies could find it increasingly difficult to compete with food producers for access to limited water supplies. Firms with suppliers operating in areas of water stress and growing competition for resources could face the greatest price rises. Trucost can apply regional water scarcity prices to water used in company-specific supply chains to take account of pressures on resources at locations where suppliers operate. Water can be mapped by sector within supply chains to identify which suppliers could benefit most from improving water efficiency (see Chart 3). Information on water-intensive sectors can be used to engage with relevant suppliers to understand the relationship between volumes of water used and the security of supplies. Water scarcity costs can be used as a shadow price for water to evaluate future Capex and procurement proposals, taking account of water stress in specific areas.

Water scarcity costs can be used as a shadow price for water to evaluate future Capex and procurement proposals, taking account of local water stress.

Chart 3: Supply chain water use by sector

Among those most exposed to water scarcity costs are General Industrials firms, which are already under growing pressure to absorb rising raw material costs rather than pass them on. For instance, the transport and logistics firm Stobart Group Plc has so far used fuel price escalators in customer contracts to manage exposure to higher energy costs, but is under pressure from cost inflation and customers already hit by fuel price rises.40 Higher water costs in value chains, or disruption to supplies of water-intensive products, could increase the costs of inputs such as chemicals and packaging.
Rexam Plc is among Industrials increasing selling prices as input prices rise. The consumer packaging group
37

UNEP International Water Management , Institute, Ecosystems for water and food security, 2011

38

http://www.unilever.com/images/ OutlookandrisksAR10tcm13259508.pdf, last accessed 27 September 2011 Dairy Crest Group Plc, Annual Report 2011

39

and beverage can maker is putting more customers onto contracts that are designed to pass through costs. Nonetheless, the company reports that Steep and prolonged rises in input prices may have a material impact on results. It warned that a substantial rise could cause a change in demand for products as customers adjust their packaging mix and the materials they use.41 Meanwhile, firms focused on recycling stand to gain from price rises. For instance, revenues at DS Smith Group Plc have been bolstered by growing demand for recycled packaging.42 Some companies are improving supply chain efficiency to help manage exposure to rising input costs. The pub chain JD Wetherspoon Plc has worked with Dhl International Gmbh to create logistics hubs43 and improve resource efficiency, resulting in landfill tax savings and new revenue streams from waste.44 Actual exposure to rising commodity prices varies between companies within sectors, depending on factors such as purchasing power, supply chain management, resource efficiency, product mixes and abilities to pass on costs to customers. Resource efficiency is likely to be a more significant driver of competitive advantage in the most exposed sectors.

40

Stobart Group Ltd, Preliminary results for the 12 months ended 28 February 2011, 23 May 2011 Rexham, Annual Report 2010

41

42

DS Smith Plc, Interim Management Statement, 6 September 2011 JD Wetherspoon slashes deliveries with DHL, logisticsmanager.com, 1 April 2010 DHL Envirosolutions support for JD Wetherspoon, guardian.co.uk, 14 June 2011

43

44

www.trucost.com

www.greenmondays.com

FTSE 350 Commodity Exposure Index


PROFIT RISK FROM COMMODITy COSTS vARIES By COMPAny AnD SECTOR Trucost assessed earnings at risk from a 10% increase in commodity prices within sectors. Although input costs were already deducted from earnings, findings show that some companies analysed are more sensitive than sector peers to steeper raw material prices passed on by suppliers. Exposure to rising costs of oil, coal, wheat and cotton in supply chains varies most among Food Producers, as shown in Chart 4.

Chart 4:

Range in EBITDA at risk from 10% rise in commodity costs

Companies that are more exposed to price rises within supply chains than sector peers could find it more difficult to pass on rising costs.

Varied exposure to price rises within sectors would affect the ability of companies to pass on rising costs. Companies that have above-average exposure to rising commodity prices could find it more difficult to pass on higher input costs without losing market share to sector peers. Actual financial risk from commodity price rises depends on factors including differences in business activities. and the resource intensity of supply chains. Varied exposure to rising commodity costs within sectors indicates potential for companies to reduce risk and gain competitive advantage through measures such as engaging with suppliers to improve resource efficiency. Exposure to water scarcity costs also varies significantly among Food Producers and Food & Drug Retailers (see Chart 5). Companies in sectors with the greatest variation in exposure to risks stand to gain most from using resources more efficiently. Firms that are more resource-intensive than the average for their sector could benefit most from decoupling commodity risk from supply chains to maintain price stability.

Chart 5:

Range in exposure to water scarcity costs

www.greenmondays.com

www.trucost.com

FTSE 350 Commodity Exposure Index


RESOuRCE COnSTRAInTS hERE TO STAy Economic jitters and expectations of weakened demand, along with increased supply, have temporarily dampened prices of commodities such as energy. If the global economy falters, lower oil demand and higher spare capacity could keep a lid on oil prices in the short term, but future prices will largely depend on investment to bring new supplies to market in line with demand growth.45 Extraction from unconventional sources such as oil sands, as well as carbon constraints such as emissions trading and taxes, will add to fossil fuel prices in the future. The International Energy Agency (IEA) forecast that global energy demand could rise by 36% from 2008 levels by 2035,46 and oil and coal are expected to remain the main fuels in the energy mix. Although coal prices have begun to soften, the coal market remains strong47 and supplies could be tight if coal miners in Australia are hit by more floods forecast for December/January.48 Supply constraints for commodities such as cotton, wheat and coal have begun to recover from severe weather during the past year in several regions. Cotton prices have fallen from their peak in March, but at more than US$1 per pound in September, are still more than double 2008 levels.49 The Agricultural Outlook to 2020 by the OECD and Food and Agriculture Organization (FAO) predicted falls in commodity prices in the short term, depending on weather.50 However, cotton and wheat prices rose again in September after the U.S. Government lowered production forecasts because drought severely damaged crops.51,52 Market balances can change rapidly, and the OECD and FAO expect more extreme weather conditions53 and related crop yield fluctuations to become an even more critical driver of price volatility in the future. More climate variability and change will challenge agriculture, fisheries and forestry to deliver the increase in global food production needed to feed the growing world population.54 Global agricultural productivity growth is slowing and could be limited by resource pressures, particularly for water and land. More regions are facing water scarcity and the risk of a reduction in productive land.55 Water and ecosystems, as well as increasingly scarce resources such as potash and phosphates,56 need to be managed more sustainably.57 Companies will also face higher water prices as utilities pass on rising costs for energy, infrastructure, achieving water quality standards and licencing conditions, and treating wastewater and sewerage. Global water requirements are expected to reach 40% above current accessible and reliable supplies by 2030,58 and climate change impacts such as more frequent and severe weather events are expected to add pressure on resources.59 Droughts and floods, rainfall variability and the depletion of groundwater supplies are already challenging the effective management of water resources in many countries.60
45

IEA report looks at oil, gas market prospects through 2016, International Energy Agency news release, 16 June 2011

46

http://www.iea.org/weo/, last accessed 27 September 2011 2011 Coal Trends and Q4 Outlook, Coal Investing News, 1 September 2011 Australian coal miners face more flood forecasts, Argus, 7 September 2011 FactSet, 9 September 2011 Agricultural Outlook 2011-2020, OECD

47

The peak in commodity prices in 2008 before the global financial crisis took its toll, and their rise in 2010/11, signal a long-term trend. Climate change impacts and increased demand driven by rising population levels, economic growth and urbanisation will continue to drive price volatility and inflation. The need to position businesses for growing resource constraints and competition is at the heart of strategies of FTSE 350 companies such as Marks and Spencer Group Plc. Although most in the FTSE 350 are yet to fully extract opportunities to develop more effective, efficient and secure operations and supply chains, globally some firms are starting to manage financial risk from the rising costs of resource constraints. Companies such as sportlifestyle firm PuMA and the telecommunications service provider Sprint nextel Corporation are using data on supply chain resource use to identify potential risks and engage with suppliers on improving efficiency. Others are diversifying supply chains, creating more localised supplier hubs, developing closer relationships to strengthen security of supplies, or turning to vertical integration.61 Innovation and flexibility are likely to increasingly differentiate firms that redesign business models, value chains, products and services to optimise resource use. Businesses that recognise emerging risks which are still under the radar of competitors can develop more resilient value chains and gain first mover advantage. nExT STEPS Companies can use Trucost data to systematically identify risks and opportunities to reduce exposure to rising resource and pollution costs, along each tier of supply chains. Companies can use Trucost data and analysis to: 1. 2. 3. 4. Identify suppliers most exposed to rising commodity prices and environmental costs. Map environmental risks across supply chains. Benchmark suppliers on environmental efficiency and identify opportunities for improvement. Identify potential to reduce exposure to rising input costs from resource use and pollution.

48

49

50

51

Texas fires and drought cost farms $5.2 bn, Financial Times, 7 September 2011 Grain prices rally on lower crop forecasts, Financial Times, 7 September 2011 Agricultural Outlook 2011-2020, OECD

52

53

54

Climate Change and Food Security in the Context of the Cancun Agreements FAO submissions to the UNFCCC http://www.fao.org/news/story/en/item/86991/ icode/, last accessed 27 September 2011 Resource Limitations 2: Separating the Dangerous from the Merely Serious, GMO Quarterly Letter, July 2011 Ecosystems for water and food security, UN Environment Programme/International Water Management Institute, August 2011 2030 Water Resources Group, Charting our Water Future, Economic frameworks to inform decision-making, 2009

55

56

57

58

59 The 3rd United Nations World Water Development Report: Water in a Changing World, 2009 60

OECD, Managing Water for All, An OECD Perspective on Pricing and Financing, Key messages for policy makers, 2009 Winners and Losers in the New Commodity Price Regime, Monitor Company Group Ltd Partnership, 2011

61

To find out more about Trucosts products and services, or our research processes and tools, please visit www.trucost.com or email sarah.wainwright@trucost.com

www.trucost.com

www.greenmondays.com

FTSE 350 Commodity Exposure Index


APPEnDICES Appendix 1: Companies analysed for the report
A.G. Barr Plc Aegis Group Plc Aggreko Plc ARM Holdings Plc Ashtead Group Plc Associated British Foods Plc AstraZeneca Plc Autonomy Corp. Plc Aveva Group Plc Avis Europe Plc Babcock International Group Plc BAE Systems Plc Balfour Beatty Plc BBA Aviation Plc Bellway Plc Berendsen Plc Berkeley Group Holdings Plc Booker Group Plc Bovis Homes Group Plc British American Tobacco Plc British Sky Broadcasting Group Plc Britvic Plc BT Group Plc BTG Plc Bunzl Plc Burberry Group Plc Bwin.Party Digital Entertainment Plc Cable & Wireless Communications Plc Capita Group Plc Carillion Plc Carnival Corp. Carpetright Plc Centrica Plc Charter International Plc Chemring Group Plc Cobham Plc Colt Group S.A. Compass Group Plc Computacenter Plc Cookson Group Plc Cranswick Plc Croda International Plc CSR Plc Daily Mail & General Trust Plc Dairy Crest Group Plc De La Rue Plc Debenhams Plc Devro Plc Diageo Plc Dignity Plc Dixons Retail Plc Domino Printing Sciences Plc Domino's Pizza UK & IRL Plc Drax Group Plc DS Smith Plc Dunelm Group Plc easyJet Plc Electrocomponents Plc Enterprise Inns Plc Euromoney Institutional Investor Plc Experian Plc Fenner Plc Fidessa Group Plc Filtrona Plc FirstGroup Plc G4S Plc Genus Plc GKN Plc GlaxoSmithKline Plc Go-Ahead Group Plc Greene King Plc Greggs Plc Halfords Group Plc Halma Plc Hays Plc Hikma Pharmaceuticals Plc Home Retail Group Plc Homeserve Plc Howden Joinery Group Plc Imagination Technologies Group Plc IMI Plc Imperial Tobacco Group Plc Inchcape Plc Informa Plc Inmarsat Plc InterContinental Hotels Group Plc International Power Plc Intertek Group Plc Invensys Plc ITE Group Plc ITV Plc J Sainsbury Plc J.D. Wetherspoon Plc JD Sports Fashion Plc Johnson Matthey Plc Keller Group Plc ITV Plc J Sainsbury Plc J.D. Wetherspoon Plc JD Sports Fashion Plc Johnson Matthey Plc Keller Group Plc Kesa Electricals Plc Kier Group Plc Kingfisher Plc Kofax Plc Ladbrokes Plc Laird Plc Logica Plc Marks and Spencer Group Plc Marston's Plc Meggitt Plc Melrose Plc Michael Page International Plc Micro Focus International Plc Millennium & Copthorne Hotels Plc Misys Plc Mitchells & Butlers Plc Mitie Group Plc Moneysupermarket.com Group Plc Morgan Crucible Co. Plc Mothercare Plc N. Brown Group Plc National Express Group Plc Next Plc Northgate Plc Northumbrian Water Group Plc Ocado Group Plc Pace Plc Pearson Plc Pennon Group Plc Persimmon Plc Premier Farnell Plc Premier Foods Plc PZ Cussons Plc QinetiQ Group Plc Rank Group Plc Reckitt Benckiser Group Plc Reed Elsevier Plc Regus Plc Rentokil Initial Plc Restaurant Group Plc Rexam Plc Rightmove Plc Rolls-Royce Holdings Plc Rotork Plc RPC Group Plc RPS Group Plc SABMiller Plc Sage Group Plc Scottish & Southern Energy Plc SDL Plc Senior Plc Serco Group Plc Severn Trent Plc Shanks Group Plc Shire Plc SIG Plc Smith & Nephew Plc Smiths Group Plc Spectris Plc Spirax-Sarco Engineering Plc Spirent Communications Plc Sports Direct International Plc Stagecoach Group Plc SThree Plc Stobart Group Ltd. Supergroup Plc Synergy Health Plc TalkTalk Telecom Group Plc Tate & Lyle Plc Telecity Group Plc Telecom Plus Plc Tesco Plc Thomas Cook Group Plc Travis Perkins Plc TUI Travel Plc Ultra Electronics Holdings Plc Unilever Plc United Business Media Ltd. United Utilities Group Plc Victrex Plc Vodafone Group Plc ADS Weir Group Plc WH Smith Plc Whitbread Plc William Hill Plc Wm. Morrison Supermarkets Plc Wolseley Plc WPP Plc WS Atkins Plc Yule Catto & Co. Plc

10

www.greenmondays.com

www.trucost.com

FTSE 350 Commodity Exposure Index


Appendix 2: Trucost data on corporate resource use Over the past 10 years, Trucost has researched, standardised and validated the worlds most comprehensive data on corporate environmental impacts, including carbon, water, waste and pollutants. Trucost researches and standardises company data disclosed in annual and environmental reports, on websites and in Carbon Disclosure Project responses. Data on more than 4,000 companies are included in Trucosts database, used to model environmental profiles for resource use in operations and supply chains. Corporate data used in this study may include disclosures on energy and water use. Data are not free-float adjusted. Trucost uses its environmental profiling input-output model to estimate the type and level of a companys resource use (the inputs) to produce goods or services (outputs), and the related level of pollutants. Detailed government census and survey data on resource use and pollutant releases, industry data and national economic accounts inform calculations. The model uses data from sources including the U.S. Bureau of Economic Analysis and UN Food and Agriculture Organization (FAO) to calculate each companys likely operational and supply chain environmental impacts. Calculations are based on the economic activity of any given company operating in 464 industries. Resource use and environmental impacts are modelled for each sector and allocated to a company according to the proportion of its revenues in each sub-sector. Trucosts comprehensive coverage ensures that all companies within the universe analysed are included, not just those that disclose environmental information. Environmental profiling using an input-output model may not account fully for company-specific factors, and this analysis is a best efforts attempt to understand environmental impacts in the current absence of sufficient and comparable company disclosures on resource use in operations and supply chains. Data from the World Bank on commodities prices for 2010 were applied to quantitative data on amounts of oil, coal, wheat and cotton estimated to be used by FTSE 350 companies. The water price was based on a functional relationship between water availability and the value provided to monetise the scarcity value of water in different areas. A sample of 18 comparable U.S. studies was used to plot the relationship between scarcity and value, based on matching valuations in the literature to the scarcity of water at the locations at which the studies were conducted to develop a demand curve for water. Resulting potential commodity and water costs were measured relative to earnings for each company. Actual company use of commodities and water is likely to vary from estimates depending on factors such as resource efficiency. However, the analysis provides a starting point to develop an understanding of which sectors could be most sensitive to rising commodity prices.

ABOuT GREEn MOnDAy

Green Monday is an independent platform that helps companies to build better businesses as sustainability increasingly impacts the global economy. We look at sustainability from the perspective of core business strategy join the Green Monday debate if you are interested in changing your business model to beat rising commodity prices or executing a green change management programme, or if you want to know what the leaders are doing. Events, Green Papers, Benchmark Surveys and GREENPRINT . www.greenmondays.com
ABOuT TRuCOST

Over the past 10 years, Trucost has researched, standardised and validated the worlds most comprehensive data on corporate environmental impacts, including carbon emissions, water usage, waste disposal, pollutants and natural resource use. This provides Trucosts clients with: The most efficient approach to measuring carbon and wider environmental impacts across operations and supply chain tiers; Clear identification of focus areas for reducing material environmental risks; Validation of source data, including completion of gaps in data which are currently not being tracked or reported; Comparison of environmental performance against peers and sector benchmarks.

www.trucost.com

The information used to compile this report has been collected from a number of sources in the public domain and from Trucosts licensors. Some of its content may be proprietary and belong to Trucost or its licensors. The report may not be used for purposes other than those for which it has been compiled and made available to you by Trucost. Whilst every care has been taken by Trucost in compiling this report, Trucost accepts no liability whatsoever for any loss (including without limitation direct or indirect loss and any loss of profit, data, or economic loss) occasioned to any person nor for any damage, cost, claim or expense arising from any reliance on this report or any of its content (save only to the extent that the same may not be in law excluded). The information in this report does not constitute or form part of any offer, invitation to sell, offer to subscribe for or to purchase any shares or other securities and must not be relied upon in connection with any contract relating to any such matter. Trucost is the trading name of Trucost Plc a public limited company registered in England company number 3929223 whose registered office is at One London Wall, London EC2Y 5AB, UK. Trucost/Green Monday 2011

www.trucost.com

www.greenmondays.com

11

FTSE 350 Commodity Exposure Index

COnTACT TRuCOST

Sarah Wainwright

Trucost Plc
uK & InTERnATIOnAl

+44 (0)20 7160 9800 info@trucost.com


nORTh AMERICA

+1 800 402 8774 northamerica@trucost.com


PRESS

+44 (0)20 7160 9816 info@trucost.com

COnTACT GREEn MOnDAy

Georgie vere nicoll

Green Monday
DIRECT

+44 (0)20 7160 9855


GEnERAl EnquIRIES

+44 (0)20 3137 1728 georgie.verenicoll@greenmondays.com 3rd Floor 22 Chancery Lane London WC2A 1LS

www.trucost.com

www.greenmondays.com

12

Vous aimerez peut-être aussi