Nigeria’s largest companies have spent a whopping N85.7 billion on Advertising, Branding, Marketing and Promotion “ABMP” expenses in 2019. This is according to the information contained in the annual report of these companies as compiled by Nairametrics research.
According to the data, ABMP spend annualized for 2019 is about N114 billion compared to N116.394 billion spent in 2018 and N101.8 billion in 2017. We believe the ad spend could top N114 billion as ABMP expenses typically increase in the last quarter of the year. Most of the companies featured in our survey do not report advertising spend separately bundling it with marketing, branding and promotional expenses.
Big spenders: The research also indicates big ad spend occurs mainly in industries with stiff competition as they jostle to draw customer attention and pockets. For example, the brewery industry made of Nigeria Breweries, Guinness and International Breweries spent about N41.6 billion in 2018 compared to N36.4 billion in 2017. ABMP data in the first 9 months of 2019 suggests they have spent about N39 billion. Guinness’s financial year-end is June 30th as such its ABMP spend for 2018 was between July 2018 and June 2019.
International Brewery’s acquisition by ABInbev has resulted in a big leap in ad spend between 2017 and 2019 helping them scrape into the market share of its closest rival Guinness Nigeria Plc. In 2018, Intl. Breweries spent N7.86 billion compared to N1.9 billion in 2017. It has so far spent about N9 billion in the first 9 months of 2019. Nigerian Breweries continues to lead the pack with over N20 billion (N22.4b, N23.7 billion and N21.3 billion in 2017, 2018 and 2019 respectively.
Big spenders: Apart from the Brewery sector, the banking sector also recorded significant ABMP spend with about N31.9 billion so far in 2019. Spending in this sector topped N52.9 billion in 2018 and about N50.4 billion in 2017.
Access Bank’s merger with Diamond Bank helped recorded the biggest increase in ABMP spend topping N5.9 billion in the first 9 months of 2019. This compares to N4.8 billion recorded in 2018 and N6billion recorded in 2017 all 12 full calendar months compared to 9 months so far in September. The bank is set to top its total ABMP spend for 2017.
We also observe, Zenith Bank remains the highest spenders with aver N9 billion spent in 2018. The bank has so far spent about N5.1 billion in 2019. Combined, the banking sector has spent about N135.3 billion in 33 months. We also observed a rise in the commercial bank’s preference for spending on big media events such as fashion shows, SME fairs, and hackathons. It is unclear how they classify this spend in their books considering that it cuts across advertising, branding, promotions, and marketing.
How are they spend: Nairametrics research concludes big brands spend a huge chunk of their money on billboards, TV spend, Newspapers and digital ads. We also observe ABMP spending on branded events has increased over the years as brands pivot more into fashion shows and fairs.
The pivot towards organic media sponsored events is thought to have started with Guaranty Trust Bank following the success of its fashion and food fair. Banks like Zenith, UBA, and Fidelity Bank have also veered into this space splashing millions of naira on billboard and digital ad spend. Some banks also spend heavily running online TV stations that promote their brand and products as well as cover their events. The banks also not report how to measure return on investments.
A recent PWC research report on outlook of Entertainment and Media in Nigeria projects total advertising spend of about $450 million (N162 billion) in 2019. This amount likely excludes branding, marketing, and promotions. According to the report, Nigerian brands spent about $387 million and $419 million in 2017 and 2018 respectively. Most of the money went towards TV & Video spend as well as Out of home (billboard) advertising. Internet ad spend is only expected to hit $86 million in 2019.
Foreign ads: Sources from some of Nigeria’s largest ad agencies inform Nairametrics that foreign ad sellers like Google, Facebook, and Twitter attract most of the $86 million projected to be spent on internet ads in 2019. Online businesses such as news and blogs are often paid pittance compared to their foreign counterparts mostly due to their larger user base and significantly better ad programs.
Nigerian media agencies and ad sellers also complain of being shortchanged by internationally affiliated PR agencies. According to a CEO of a PR agency who preferred to remain anonymous, multinationals doing business in Nigeria often prefer to key into global PR contracts with their European or US headquarters cutting off the services of PR agencies locally. Even when they do decide to work with local PR agencies, the fees are relatively smaller compared to when they directly invoice brands.
Recession and increased competition: Ad and PR agencies also complained that stiffer competition in the sector has reduced their earnings. This is even made worse by budget cuts from major brands who are now more frugal with how they channel their ad spend. According to the agencies, most brands also demand data on ROI as they increasingly want to tie ad spend increase in topline revenues.
GSK in big trouble as losses mount
The results were less than impressive with several key indicators showing a year-on-year decline.
GlaxoSmithKline Consumer Nigeria Plc (“GSK Plc” or “the Company”) is a public limited liability company with 46.4% of the shares of the Company held by Setfirst Limited and Smithkline Beecham Limited (both incorporated in the United Kingdom), and 53.6% held by Nigerian shareholders.
The ultimate parent and controlling party is GlaxoSmithKline Plc, United Kingdom (GSK Plc UK). The parent company controls GSK Plc through Setfirst Limited and SmithKline Beecham Limited.
The Company recently published its unaudited first quarter (Q1) 2021 consolidated financial statements for the period ended 31 March 2021.
The results were less than impressive with several key indicators showing a year-on-year decline. For example, Group revenue (turnover) declined from ₦4.99 billion in Q1 2020 to ₦3.46 billion in Q1 2021 a drop of over 30.66%. The revenue drop was due to a sharp decline in the local sale of its healthcare products.
Total loss after tax as of Q1 2021 was ₦238.07 million compared to a profit after tax of ₦113.47 million for the same period to Q1 2020.
The company is essentially divided into two segments viz: Consumer Healthcare and Pharmaceuticals. While the Healthcare segment was largely profitable in Q1 2021 (making a profit before tax of ₦ 8.73 million by March 31, 2021, the pharmaceuticals segment made a loss of ₦262.93 million in the same period.
The Consumer Healthcare segment of the company consists of oral health products, digestive health products, respiratory health products, pain relievers, over the counter medicines, and nutritional healthcare; while the pharmaceutical segment consists of antibacterial medicines, vaccines, and prescription drugs. While goods for the consumer healthcare segment are produced in the country, the pharmaceuticals are all imported.
The largely imported pharmaceutical products are thus exposed to the vagaries of foreign currency fluctuations coupled with a negligible to no revenue from the foreign sale of its healthcare products (same as in Q1 2020) as it barely exports its products out of the country.
The cost of importing the antibacterial, vaccines and prescription drugs, and the significant local operating expenses wiped off the marginal gross profits made by the pharmaceutical segment of the company. In effect, the gross profit of ₦508.12 million made by the pharmaceutical segment of the company was eliminated by an operating expense of ₦735.7 million and this resulted in a net loss for the pharmaceutical segment of the business.
Apart from the impact of imported pharmaceutical products as already discussed, other issues that affected the company’s Q1 2021 results and are likely to continue to affect its performance in future include:
- A limited product mix that has only the likes of Macleans and Sensodyne (Oral Healthcare); Pain relievers (Panadol and Voltaren); Digestive Health (Andrews Liver Salt); and Respiratory Health (Otrivin and Panadol Cold and Catarrh) all within the Consumer Healthcare segment.
- Increased competition, particularly from local pharmaceutical manufactures of similar over the counter medicines and other prescription medications and vaccines.
In addition, in October 2016, GSK Plc divested its drinks bottling and distribution business that manufactures and distributes Lucozade and Ribena in Nigeria, and other assets including the factory used for the drinks business to Suntory Beverage & Food Limited. The loss in revenue from these popular brands continues to impact its topline.
GlaxoSmithKline (GSK) is a global healthcare company and is well-known and acknowledged for its pioneering role in discovering and distributing vaccines for the likes of hepatitis A and B, meningitis, tetanus, influenza, rabies, typhoid, chickenpox, diphtheria, whooping cough, cervical cancer and many more.
It is also renowned for its manufacture and distribution of prescription medicines such as antibiotics and treatments for such ailments as asthma, HIV/AIDS, malaria, depression, migraines, diabetes, heart failure, and digestive disorders.
Perhaps GSK Plc’s fortunes may change if the company is able to obtain the parent company’s licence to manufacture GSK-owned vaccines and prescription medicines within the country while also exploring the possibility of extending the sale of its products outside the shores of the country.
Since different expertise is required for vaccines and prescription drug manufacture and distribution as compared to manufacture and sale of consumer healthcare products, perhaps another alternative may be for the company to create two separate companies with one company being a 100% vaccines and prescription drug pharmaceutical manufacturing and distribution company while the second company specializes entirely in the manufacture and sale of consumer healthcare products.
As a result of the Q1 2021 performance, the company’s earnings per share (EPS) dropped to -20 kobo compared to the 9 kobo earnings per share reported in Q1 2020. At the start of 2021, GSK Plc’s share price was ₦6.90 but the company has since lost over 10% of its price valuation as the company’s share price closed at ₦6.20 on April 30, 2021.
NB Plc’s share price and dividends keeping shareholders happy
It was not all hunky-dory for the company as its cost of sales jumped from N48.3 billion in Q1 2020 to N66 billion in Q1 2021.
Nigerian Breweries Plc (“NB Plc” or the “Company”) reported its first-quarter (Q1) 2021 results on April 23, 2021.
The company’s performance was impressive considering the headwinds it faced late in 2020 and early 2021 from inflationary pressures, poor consumer purchasing power, lethargic economic growth, and increase in the company’s beer prices which took effect from Q4 2020.
The company achieved a net revenue for the three months to March 31, 2021 of N105.68 billion compared to N83.23 billion for the same period to March 31, 2020 — a 27% increase compared to the Q1 2020 results.
It also achieved a N39.67 billion gross profit — a 13.7% increase in gross profit compared to Q1 2020.
Quarter-on-quarter EBITDA rose by 22.8% from N19.82 billion in Q1 2020 to N24.34 billion in Q1 2021. Other positive outcomes quarter on quarter were the increase in operating income (from N10.94 billion to N14.49 billion), profit before tax (from N8.3 billion to N11.51 billion), and profit after tax (from N5.53 billion to N7.66 billion).
It was not all hunky-dory for the company as its cost of sales (direct costs attributable to NB Plc’s production) jumped from N48.3 billion in Q1 2020 to N66 billion in Q1 2021, an increase of N17.7 billion. According to the company, its costs are subject to seasonal fluctuations as a result of weather conditions and festivities. As a result, the company’s results and volumes are dependent on the performance in the peak‐selling season, typically resulting in higher revenue and profitability in the last quarter of the year.
The total cost of sales, marketing and distribution, and administration expenses grew from N72.47 billion in Q1 2020 to N91.63 billion in Q1 2021 – a jump of 26.43%. This jump was largely attributable to the cost of raw materials and consumables which grew to N46.53 billion (compared to N30.2 billion for the same period in Q1 2020).
The raw materials cost pressure has been a trend since Q2 2020 driven by the rising commodity prices, foreign exchange devaluation and domestic inflationary pressures. As a result, the cost of the raw materials to net income ratio has continued to rise. This ratio was 36.3% in Q1 2020 but has risen to 44% in Q1 2021.
What may be a source of particular concern for the company is how well working capital is being managed from a liquidity and leverage perspective. The company reported cash and cash equivalents of N30.37 billion in Q1 2020, this had dropped to N18.43 billion by Q1 2021. In the same period, trade debtors and other receivables (i.e., those that owe the company for purchases that have not been paid for) had increased from N11.42 billion in Q1 2020 to N23.48 billion in Q1 2021, an increase of over 105% in just 12 months!
More worrying, in terms of magnitude, are trade creditors and other payables (i.e., those that the company owes payments for goods and services purchased) which grew from N139.2 billion in Q1 2020 to N145.41 billion in Q1 2021, a rise of N6.21 billion (or 4.5%) in just 12 months.
While the company’s loans and borrowings had reduced significantly (short-term loans in Q1 2021 was N35.65 billion versus N39.64 billion in Q1 2020; and long-term loans in Q1 2021 was N15.87 billion versus N51,81 billion in Q1 2020), the cost of borrowing, that is, interest expenses that the company paid on borrowed funds, rose from N2.7 billion in Q1 2020 to N3 billion in Q1 2021. This suggests that while short term and long-term borrowing have reduced, working capital needs are being refinanced at a higher cost or alternatively, most of the reduced short term or long-term borrowings have simply been restructured from longer-term loans to shorter-term overdrafts and commercial papers with a higher interest expense. The balance sheet as of Q1 2021 showed a liability in the form of bank overdraft and/or commercial papers of N21.44 billion which was not in the books in Q1 2020.
The first-quarter report also showed that as of March 31, 2021, the company had revolving credit facilities with five Nigerian banks to finance its working capital with the approved limit of the loan with each of the banks ranging from N6 billion to N15 billion (total N66 billion). N9 billion of the available amount was utilized at end of March 2021 (2020: Nil).
It should be noted that NB Plc’s financial statements for the 3 months ended 31st March 2021 are yet to be independently audited, so the results may be further improved or be worse, depending on the views and professional opinion of the external auditors in terms of accounting treatments and management judgement on significant transactions.
From the company’s numbers and explanations, the results are clearly driven by:
(1) Benefits from its increased pricing with the raised prices taking effect from December 10, 2020. The increases ranged from 5.2% to 6%, mainly on selected brands packaged in aluminium cans and on the 600-ml Star Larger returnable glass bottle.
(2) Volume growth in its premium brands (particularly Heineken) and non-alcoholic portfolio (particularly Maltina).
(3) Relative inelastic demand for its portfolio mix despite price increases, availability of substitutes, and stagnate consumer wages eroded by inflation. In economics, inelastic demand occurs when the demand for a product remains static or changes less than changes in price.
Overall, the company achieved outstanding results that would have confounded analysts’ estimates. Given continued inflationary trends and currency depreciation, it would be interesting to see whether turnover and profitability growth are sustainable over the remaining quarters of the year. On its financial year 2020 performance, the company paid a final dividend of NGN0.69 in April 2021 (interim of NGN0.25 paid in December 2020). If the trend is sustained, it can only be good news for NB Plc in terms of increases in its share price and dividends for its shareholders.
Heineken Brouwerijen B.V owns 37.73% of the company to which NB Plc pays annual technical service fees and royalties.
Nairametrics | Company Earnings
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