Code - Source - Pexels and Free Images - Pixabay
Welcome to the fifty-sixth edition of my weekly blog. In volume II, I look at what some of the most sustainable companies in the world are doing to be better corporate citizens.
Each week I will analyse three companies from an industry sector to see what policies and procedures they have implemented to make their companies more sustainable. I will also compare these companies’ financial ratios (valuation, growth, yield, leverage etc.) against their industry averages to see if a company can be sustainable and still outperform their industry sub-sector expectations.
1. Dassault Systemes SE
Dassault Systemes SE is a leader in designing solutions for a more sustainable world such as smart cities and smart transportation. Solar Impulse is a project whereby Dassault designed an aircraft that can fly at day and night powered by the sun. Dassault has also designed hydro dams and wind systems that are more operationally efficient to run. In Singapore and Rennes, France, Dassault have used their 3D software called ‘3DEXPERIENCity’ to design 3D versions of the cities to help predict and plan the infrastructure requirements for the cities.
Dassault Systemes SE’s latest environmental report included the following achievements:
2. Autodesk Inc.
Highlights from Autodesk’s Sustainability Report 2015 include:
Autodesk’s Partner Code of Conduct documents 13 areas where suppliers must be in compliance with in order to do business with them:
3. Adobe Systems
Adobe’s 2017 Sustainability and Social Impact Report highlights include:
Key Performance Statistics – Company Vs Industry Average
Using Morningstar data, we can compare the performance of the three companies against industry averages:
Dassault’s trailing-twelve-month operating margin of 22.5% is consistent with their 2017 level of 22.6%. Operating margin has been consistently at 22% or more for the last three financial years. Dividend per share has grown steadily from €0.42 per share in 2013 to €0.58 per share in 2017. Capital expenditure amounted to €84.5m in 2015 which is 11% of net cash flow from operations. Approximately 41% of headcount are employed in R&D and €577m was spent on R&D in 2017. The company’s net margin of 14% is well ahead of industry averages also, as is its returns on equity and assets. Dassault’s strong financial performance also means that its debt/equity of 0.2 is well below the industry average of 0.4.
Autodesk’s three-year revenue growth is negative. This can be explained by a change to their business model. The company is following industry trends and is moving away from PC licenses to cloud-based subscriptions. The net effect of this change has been a $500m decline in net revenue over this time period. One of Autodesk’s key performance metrics, and especially so, during this time of change is ‘Annualised Recurring Revenue’ (ARR), ARR increased by 25% between 2018 and 2017. Autodesk also recored a year-on-year 80% subscription retention rate. Net margins and returns on equity and assets are also negative because of the transition to cloud-based subscriptions.
Adobe, just like Dassault posted strong financials for 2017. GAAP Operating margins have jumped from 19% in 2015 to 30% in 2017. Revenues grew by over 50% during this period with operating expenses rising by 30%. Adobe’s digital cloud offering helped drive the revenue increases. Adobe’s disciplined management of operating expenses has meant that returns on assets and equity are well ahead of the industry average and their debt/equity ratio of 0.2 is very healthy.
It easy to see why these companies are leaders in sustainability, they have above average female representation on their boards, they have demonstrated innovation in the areas of smart city and smart transportation design, Cleantech innovation etc.
Dassault and Adobe’s financial performance is well ahead of industry averages. Autodesk’s recent performance is behind industry comparatives; however, they are going through a transitionary period where they are pivoting from license driven fee income to cloud-based subscriptions.
Next week’s blog will feature three automobile companies, BMW, Daimler, and Renault, and the measures they have taken to be more sustainable.
If you liked this article you might enjoy reading the following information:
Week 55 Pharmaceuticals: Johnson & Johnson, Allergan Inc.,and UCB SA
Week 54 Insurance: Storebrand ASA, Sun Life Financial Inc.,and Allianz SE
Week 53 Electricity & Gas: Enagas SA, Centrica Plc, and Iberdrola SA
ACCA: The Sustainable Development Goals: redefining context, risk and opportunity
The content of this article is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find in this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.