WARC releases Covid-19 recession marketing guide for advertisers, agencies

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WARC releases Covid-19 recession marketing guide for advertisers, agencies

There are lessons that can be learned from past recessions, but the one the world is now entering is likely to look rather different; The WARC Guide to Marketing in the COVID-19 Recession, published today, presents advertisers, agencies and media owners with relevant frameworks, actionable ideas, and examples of how major marketers are already putting plans into practice.

Observers believe this COVID-induced recession will be both longer and deeper than previous recessions – even countries that escaped the worst of the pandemic can’t avoid the economic consequences. “The shape of the recovery is difficult to predict and will vary by sector,” says David Tiltman, VP Content, WARC.

“With many brands unable to distribute products and services, the usual advice to ‘keep advertising’ may not apply in all cases, and marketers need to take a nuanced approach based on their brand’s situation.”

“This WARC Guide to Marketing in a Recession pulls together the best thinking from across the industry on navigating the post-lockdown period,” says Lena Roland, Managing Editor, WARC Knowledge. It includes learnings from past recessions, explains how the COVID-19 recession is different, offers lessons from China, recommends key actions that brands can take now, and identifies growth opportunities beyond the lockdown. (Subscribers can read The WARC Guide to Marketing in the COVID-19 Recession in full here.)

The playbook for ‘normal’ recessions

A significant body of research studies suggests that significantly reducing ad spend in a recession has a negative long-term impact on brands in terms of sales, market share, growth and return on investment. Companies that maintained investment recovered more quickly.

WARC has identified five marketing lessons from previous recessions:

(1) During recessionary times, media costs decline. (2) Defend your share of voice – cutting ad spend risks damaging market share. (3) Investing in ad spend during a recession brings long-term advantage. (4) Once a decline in market share sets in, it can be hard to reverse. (5) “Going dark” can weaken consumer “bonding” metrics.

Recession 2020: What we know so far

The COVID-19 recession is the first pandemic-driven downturn of the modern era. It is a healthcare crisis, leading to a severe economic slump. That also makes the shape of the recovery hard to predict, as consequences of the lockdown become apparent and there is a risk of further outbreaks.

Cuts in media spend have been immediate and sharp. According to an Ebiquity survey, 73% of brands expect to see no sales growth this year and 81% have cut their advertising investment. Unsurprisingly, the media most hit are Out-of-home (down 73%) and Cinema (down 72%).

And according to the latest Advertising Association/WARC Expenditure Report, the COVID-19 outbreak will wipe more than £4bn from the total UK ad spend for the current year, felt across all digital channels as well as traditional.

The 2020 downturn is set to be a demand and supply-side shock, caused first by lockdown and then by critical value chain components breaking down, particularly in China, leading to disruption in product and service delivery.

Recession 2020: Actions to take now

As lockdown measures are lifted and the recession takes hold, WARC offers key actions to help brands rebound. They vary depending on a company’s resources, and if operating in a boom or bust category. Brands should:

• review their lockdown playbook,

• keep advertising if they can,

• if a brand has to reduce ad spend, use other levers to remain visible,

• maintain creative where possible,

• tailor the approach to brand-building and activation,

• kill or cut back on ‘dwarf’ brands,

• look for signs of new habit formation,

• audit e-commerce capability,

• build strategic alliances,

• review pricing but try to avoid discounting.

Early lessons from China

China, being further along the COVID-19 path than any other country, is being watched closely for indicators of changed consumer behaviour and brand responses.

As lockdown there is lifted, Chinese consumers, remain cautious and media habits are changing again, meaning marketers should retain a degree of flexibility in their media plans.

Restoring consumer confidence is proving a key challenge in China – and many brands are finding that packaging innovations can help resolve this. For example, Meituan, an online-to-offline service launched contactless shields that protect customers from infection when eating.

Opportunities for future growth

1. Further down the road to recovery, WARC notes that SMEs will be among the hardest hit and suggests consumers may support initiatives that help rebuild local business and communities.

2. Finance brands can go beyond communications to support hard-hit consumers: according to Google, online searches for “financial help” recently grew 203% in just one week, as unemployment jumps.

3. Consumer goods brands can play with pack size to meet consumer needs. For brands seeking to defend market share from private-label, adding value through formats, innovation or value-on pack is going to be critical.

4. Develop a ‘close-to-home’ strategy: People will be eager to leave their homes, but the potential of a further outbreak – combined with economic hardship – means many will prepare their homes as a safe place of sanctuary and safety. Trend forecasting company WGSN (WARC’s sister brand) predicts home health and hygiene will be a key investment category. And Accenture predicts a rise in home spending.

5. Close-to-home means food stockpiling habits may persist: Conagra, the CPG company, says the increased trial of frozen food during the lockdown offers a long-term opportunity for the category. Food companies may benefit from range extension and new product development in frozen and long-life products.

6. The ‘health economy’ will create new opportunities: Accenture notes that a “health economy” will emerge that will create “white space” opportunities for brands. The pandemic may be the catalyst for radical and lasting transformation of how health and wellness is experienced and delivered. Brands in categories outside health and wellness may be affected too and should review opportunities to form partnerships that can reassure or help health-focused consumers.

7. COVID-19 is accelerating the need for digital transformation: Many of the trends caused or accelerated by the COVID-19 require the rewiring of companies around data and digital services. At a time of significant consumer change, there is an opportunity for CMOs to play a leading role in interpreting those changes and acting as ‘super connectors’ between internal functions.

Autotrader Names Hyundai Kona a Best Car for Graduates

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Autotrader Names Hyundai Kona a Best Car for Graduates
As the class of 2020 enters one of the most difficult economic climates in recent history, Autotrader lists the Hyundai Kona among the 10 Best Cars for Recent College Graduates who are considering practicality and affordability when it comes to their car purchase. 

The Kona, with its 1.6L Turbo GDI engine, combines exceptional driving performance with class-leading safety and advanced technology. Starting at just under $20,000, Kona is recognized by Autotrader editors for its “head-turning style and an equally attractive price tag. Tech-savvy college grads will appreciate the excellent UVO infotainment system with comes standard with Android Auto, Apple CarPlay, and a USB port.”  

“We angled our list toward those cars that have a low price but still offer style and fun,” said Brian Moody, executive editor for Autotrader. “The Hyundai Kona highlights that spirit perfectly. The Kona is one of those things in life that looks more expensive than its actual price.”

“As new graduates plan for the future, having a hefty car payment is not something that should weigh them down,” said Scott Margason, director, Product Planning, Hyundai Motor North America. “The Hyundai Kona is a perfect choice – starting well below others in the subcompact SUV segment, Kona offers value while not sacrificing on the style, utility, technology convenience and safety features these young adults still need.”

COVID-19: Any Lesson For Businesses?

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COVID-19: Any Lesson For Businesses?

COVID-19 has had a far-reaching impact on the global economy. Many businesses are taking unexpected decisions to curtail cost amid pressure on revenue due to slowing demand. Certainly, there are a few lessons for businesses to learn from this crisis.

First, it is glaring that businesses must maintain a flexible operational structure by embracing technology in a bit to adapt to the changing market dynamics. This ensures a smooth transition when implementing remote working structures. Secondly, the need to communicate the business continuity measures with key stakeholders and manage expectations from shareholders, customers, suppliers, and employees, is paramount.

Also, the pandemic presents an opportunity for companies to explore the potentials in the digital space by creating an online channel for driving sales as well as utilizing digital and social media marketing channels, to boost volumes.

Finally, companies need to review their operating structure with a focus on how to cut waste rather than cost, to identify activities that can be discontinued in the post-COVID 19 era in a bit to reduce operating cost and support margins. In all, the pandemic affords businesses the opportunity to look beyond their traditional operations and identify other business lines, which they can add to their existing operations.

Also, businesses might need to efficiently channel existing resources to better their position for life after COVID 19.

United Capital Plc Research

Ikeja Electric Unveils ‘Takeover Journey, New Horizons For Growth’ In 2018 Sustainability Report

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Ikeja Electric Unveils ‘Takeover Journey, New Horizons For Growth’ In 2018 Sustainability Report

Ikeja Electric Plc, Nigeria’s leading electricity distribution company, has published its 2018 Sustainability Report titled, “Committed to Excellence – Half a Decade of Bringing Energy to Life”, which reflects IE’s performance, accomplishments, challenges, passion for its business and its growth opportunities in 2018.

Being the first and only Electricity Distribution company in Nigeria to produce a sustainability report, the Report covers IE’s sustainability journey post-takeover with the inherent accomplishments including rebranding, infrastructure investments, smart technology investment, business process investment and performance improvement among other successes attained from the takeover period up to December 2018.

The 2018 Sustainability Report is the fourth report published by IE in the successive order and commemorates five years of the takeover of the company’s operation by its core investors following privatization on November 1, 2013.

Introducing the Report, the Chairman of Ikeja Electric, Kola Adesina, explained that “the scope of IE’s sustainability reports has moved beyond merely communicating financial risks to performance reporting aimed at fostering stakeholder confidence, long-term risk management, building the Company’s reputation and refining its corporate vision and strategy. Through the yearly publication of sustainability reports, IE has demonstrated its commitment to accountability, responsibility and transparency, which have unarguably, distinguished the Company in the Nigerian Electricity Supply Industry (NESI).”

The Company aims to publish its Sustainability Reports on an annual basis and the intended audience for this Report are key stakeholders, which include customers, employees, shareholders, suppliers, government and regulatory bodies. These stakeholders directly impact and are also directly impacted by the activities of the Company.

“Since we took over in November 2013, we have put in place, strategies that will steer the electricity distribution arm of the electricity sector value chain to greater heights,” Adesina added 

“We have assembled a strong leadership team with extensive experience, robust industry and consumer knowledge, focused on innovation and growth. In addition, we have reinvigorated our legacy of sustainability with the introduction of customer-centric initiatives, which are geared towards assuring all stakeholders of a business built on accountability, responsibility, transparency and fairness. We have demonstrated that with the right leadership, the Company can continue to grow and improve its performance as expected by all stakeholders.”

Looking beyond the five years, Adesina noted that “sustainability will remain a central focus for the Company and its Board. Our customers and other stakeholders are crucial to the achievement of our goals, and we believe that a business can only be deemed strong and successful when its stakeholders are satisfied with the services provided. Consequently, the Board will continue to support initiatives that promote its sustainability agenda while creating value in the coming years.”

The Report which is developed by the Company’s Governance & Compliance Office highlights that in 2018, the Sustainable Development Goals (SDGs) aided the Company in securing its social license to operate and build the trust of its stakeholder groups. Businesses cannot succeed in societies that fail, and as such, the Company invested in the achievement of SDGs such as; ensuring healthy lives and promoting wellbeing for all at all ages; ensuring inclusive and equitable quality education; promoting lifelong learning opportunities for all; achieving gender equality and empowering women and girls.

The Company also contributed to the achievement of the SDGs by providing access to affordable, reliable, sustainable and modern energy for all; building resilient infrastructure, promoting inclusive and sustainable industrialization; fostering innovation and promoting peaceful and inclusive societies for sustainable development. Other contributions include the provision of access to justice for all; building effective, accountable and inclusive institutions at all levels; strengthening the means of implementation and revitalizing the global partnership for sustainable development.

The Company reported that within the period under review, it established better technology-driven processes, leveraged data to measure performance for a more consistent growth pattern, optimized its network to drive efficiency and enhanced its security management system. It also deepened it’s Quality Health, Safety and Environment (QHSE) processes and procedures through learning and development programs such as “Target Zero” and “QHSE at a glance” which impacted positively on employees, vendors and contractors.

Over the years, the Company has strengthened its stakeholder engagement and partnership to foster better relationships and maintain a social license to operate, whilst building a committed workforce by treating its employees fairly through reward and recognition initiatives put in place to incentivize the excellent performance of employees.

“We do not report data because it is popular, or because others do so. We track our sustainability performance because it helps us make better decisions, helps to de-risk projects, discover new opportunities and deliver real value for our business. We acknowledge that there is still work to be done and we will continue to do all we can to ensure we maintain our brand promise – bringing energy to life.” Adesina states in the Report.

The Company’s 2018 Sustainability Report was organized and presented in accordance with the Sustainability Reporting Standards of the Global Reporting Initiative (GRI). The GRI Standards seek to achieve consistency amongst organizations reporting on their sustainability activities.

Full access to Ikeja Electric’s 2018 Sustainability Report is available on the Company’s website at https://www.ikejaelectric.com/corporate-governance/ or https://bit.ly/2SDQbK6

Financial Times Ranks Lagos Business School as Best Custom Executive Education Provider in Africa

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Financial Times Ranks Lagos Business School as Best Custom Executive Education Provider in Africa

Lagos Business School’s Custom Executive Education has been ranked number one in Africa and among the top 50 in the world by the Financial Times (FT). This is the 14th consecutive year the School is featuring on the list.

The combined ranking which evaluates the performance of top 50 business schools across the world in the areas of Open Enrolment and Custom Executive Education puts Lagos Business School (LBS) at the 47th position.

On the Custom ranking table, LBS is the 1st in Africa. It holds the 41st spot globally, moving seven places up from its 48th position in 2019.

In Open Enrolment, LBS ranks among top business schools like University of Oxford: Saïd and IESE Business School.

LBS Dean, Professor Enase Okonedo said, “We are incredibly proud to be recognised by the Financial Times of London for the 14th year in a row. At Lagos Business School, we actively seek and remain conscious of the unique needs of organisations and their executives; our Executive Education programmes are designed to address them.”

“This ranking comes at a time when the world is witnessing an unprecedented pandemic challenge and its attendant fallout. For us at LBS, it presents another opportunity to help business leaders and managers navigate this challenge; this recognition by FT validates our ability to deliver,” she added.

Lagos Business School attracts hundreds of participants to its open enrolment and custom programmes annually. Its programmes are designed to meet the needs of diverse participants and in line with the rapid changes in Africa’s business environment.

Okomu Oil’s Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020

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Okomu Oil’s Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020

CPO volume growth drives accelerated Revenue growth

In its recently released Q1 2020 financials, Okomu oil reported a 65.5% y/y increase Revenue to N7.0bn in Q1 2020 from N4.2bn in Q1 2019. The recovery in Revenue was remarkable and beat our forecast as annualised Q1 2020 Revenue of N27.9bn prints above our FY forecast of N26.5bn by 5.3%. We note the remarkable recovery in Revenue was driven by increased local sales (+81.6% y/y to N6.4bn) while export sales continue to remain pressured (-12.5% to N0.6bn). The surge in local exports remains driven by the closure of the land borders which has prevented the importation of illegal olein used in crude palm oil (CPO) production. Export sales to international markets remain pressured with largest importer of CPO, India, implementing import tariffs on CPO imports into the country. CPO prices have also been trending higher with PKO price climbing 16.4% y/y to US$820.58/MT in Q1 2020.

Margins expand on the lower cost of sales

The company’s cost of sales dipped significantly, declining 69.9% y/y to N0.3bn in Q1 2020 from N0.8bn in Q1 2019. The decline in cost of sales was broad-based with the cost of sales on Oil Palm (down 67.0% y/y) and Rubber (down 84.1% y/y) declining. Against this backdrop, Gross Profit jumped 99.1% to N6.7bn in Q1 2020 from N3.4bn in Q1 2019. In the same vein, gross margin expanded by 16.3ppts to 96.4% in Q1 2020.

Operating performance strengthens despite the spike in Opex

In Q1 2020, Okomu oil recorded a significant spike in Net Operating Expenses which climbed 71.0% y/y to N3.5bn from N2.1bn in Q1 2019. The company’s quarterly financials don’t provide a breakdown of the Net Operating Expenses, however, we note higher volumes sold within the quarter would have impacted Material costs and Technical fees. Des[ite the spike in Opex, faster growth in Gross Profit ensured Operating profit accelerated 142.6% y/y to N3.2bn in Q1 2020 from N1.3bn in Q1 2019.

Finance cost jumps on higher leverage

Net finance cost jumped by 251.8% y/y to N0.2bn in Q1 2020 from N0.05bn in Q1 2019. This was primarily driven by a spike in Finance cost (up 153.7%). The growth in Finance cost was down to higher Loans and Borrowings were taken by the company to support its Capital expenditure spend. Nevertheless, Pre-Tax profits climbed 137.9% y/y to N3.0bn in Q1 2020 from N1.3bn in Q1 2019. The company has seen its Tax holiday expire and as a result, recorded a tax expense of N1.0bn rather than a tax credit of N0.3bn in Q1 2019. While this impacted on Net margin (down 7.4ppts to 29.0%), Net profit grew 31.8% y/y to N2.0bn in Q1 2020 from N1.5bn in Q1 2019.

Outlook: Outlook remains promising on volume and price growth

Volume & Price growth to sustain accelerated revenue

We remain very positive on Okomu oil going forward reflected in our 40.7% y/y forecast for Revenue growth. Our optimism ]on the company’s revenue growth is premised on strong growth in volumes and price. We forecast a 29.7% y/y growth in CPO volumes sold to 59,928MT while we forecast prices would remain sturdy with a 15.0% growth. However, we expect Rubber volumes to remain weak as we forecast a 6.3% y/y decline to 8,641MT while prices are forecasted to remain fairly stable.

EPS forecasted to print at N8.45/s

We note the company now operates higher financial leverage but remains insignificant and thus, we do not expect higher Finance cost to impact on the company’s Net Income. However, with the company’s tax holiday over, we expect Okomu oil will record higher tax expense in 2020. In addition, we note further devaluation of the naira would impact on the company’s costs. Nevertheless, we do not expect the pressures to outweigh the company’s revenue growth. Against this backdrop, we forecast a 59.7% y/y increase in Net Income to N8.1bn while we forecast EPS will print at N8.45/s in 2020.

BUY recommendation with a target price of N89.41/s

We have a target price of N89.41/s on Okomu oil which represents a 62.4% upside on Friday’s closing price of N55.05/s. We place a BUY recommendation on the stock. Our recommendation hinges on the company’s above-average fundamentals across Revenue growth, Net Income growth, Return on Equity and Low financial leverage. Our EPS forecast implies Okomu oil trades at an implied forward PE multiple of 6.5x which is a steep 174.0% discount to our peer average of 17.8x. Furthermore, the stock has a negative 1-Year return of 18.2%, with EPS forecasted to grow at 59.7%, we see the stock as deeply discounted with a decent upside.

Access Bank’s Profits Remain Flat y/y Amid Opex Surge in Q1’20

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Access Bank’s Profits Remain Flat y/y Amid Opex Surge in Q1’20

Opex growth dampens earnings improvements

ACCESS recently-released Q1’20 results, reporting 31% y/y growth in Gross Earnings. The significant increase was mainly due to a low base from Q1’19, as the bank was yet to complete its merger with the defunct Diamond bank at the time; however, the bank’s performance in interest income growth (19% y/y to ₦131.9 billion) and Non-Interest Income (58% higher y/y at ₦77.9 billion) was nonetheless noteworthy. Most notably, the bank reported a 320% y/y spike in gains from investment securities to ₦82.9 billion. This helped to offset a ₦54.7 billion loss on foreign exchange trading and revaluations. On the other hand, the bank recorded a 153% y/y increase in loan loss provisions to ₦8.5 billion (Vetiva Estimate: ₦5.5 billion), a result of the bank’s expanded Loan book. Furthermore, the bank also recorded a spike (65% y/y) in Opex to ₦95.3 billion, driven by a weaker base in Q1’19, as well as a higher wage bill and a 55% jump in AMCON charges to ₦17.5 billion. As a result of this, the bank reported a 3% y/y growth in PBT to ₦46.3 billion (Vetiva Estimate: ₦43.5 billion) and flat PAT of ₦41.0 billion, giving an ROAE of 26.3% (Q1’19: 30.9%).

Management’s cost saving strategy to rescue FY profits

High operating costs of the new ACCESS bank continue to hamper profitability. Amidst the prospect of further moderations in earnings occasioned by the weak economic outlook for 2020 and the poor yield environment, the bank’s cost to income ratio has risen from 53.2% in Q1’19 to 62.2% in Q1’20 (FY’19: 65.0%). While the bank is far from the worst performer among its peers, this issue threatens to further stifle profit growth if not properly addressed. Therefore, management’s guidance on cost cutting measures to address the challenges are positive and could offset the decline in earnings expected in the coming quarters. Going forward, we expect a slight moderation in Opex y/y to ₦268.8 billion (Previous: ₦272.6 billion), driven by cost synergies that the bank will continue to realize over the course of the year, with regard to branch rationalization and lower subscription fees and charges and other overhead costs.

TP revised to ₦11.14 (Previous: ₦11.35)

As a result of our revised expectations for the banking sector amidst COVID-19 outbreak, we have adjusted some line items in our FY’20 estimate. Firstly, we lowered our Interest Income forecast to ₦457.1 billion (Previous: ₦515.9 billion) as well as our Interest Expense line to ₦230.3 billion (Previous: ₦252.1 billion). We also increased our Non-Interest Income forecast to ₦175.4 billion (Previous: ₦150.7 billion). Finally, we raised our loan loss provisions projection to ₦37.6 billion. Thus, our FY’20 PAT forecast has been lowered to ₦90.4 billion (Previous: ₦103.1 billion), with an EPS projection of ₦2.50 and a 12-month target price of ₦11.14 (Previous: ₦11.35). Thus, we maintain our BUY rating on the stock. The bank’s shares have lost 36% YTD and are currently trading at a P/B of 0.4x vs a Tier-I average of 0.5x.

Plagiarism Checker Online Free for Students!

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Plagiarism Checker Online Free for Students!

It doesn’t matter if you know it or not but it is a fact that you can’t deny that plagiarism affects you in one way or the other for sure and for your information all of these ways are negative and harmful for you as a person and for your profession/career as well. It doesn’t matter from which sect of writers you come from, the only thing matters are the authenticity of your content and the originality of it. You should only keep this in mind that there is no other option for you but to check content for plagiarism before you submit or upload it.

As a student, you should be worried more about this problem, and this is because if your content is detected of plagiarism in your student life, then you can suffer a lot in your life and will regret not checking your original work too later on. Some of the consequences that you will face sure-shot are the rejection of your work, the negative markings, an F grade, dropping out the course, compromised reputation, and in worst cases, you can also be expelled from the institute with a letter that will not let you admit yourself in any reputed institute and organization in your future, and this is what we are trying to save yourself from.

Plagiarism detection tools!

You must have heard about plagiarism detection tools on the internet, and if you have not, then it is time that you now take care of this problem once and for all and make your life and career risk-free! To save yourself from legal actions, monetary restitution, and fines plus a damaged reputation, you need a key in the form of plagiarism checker tools. Now there are more than dozens of apps and websites providing plagiarism checking services, but not all of them are of good repute and reliable.

There are many tools on the web that are not at all easy to use and don’t have the ability to check your work deeply and detect all kinds of plagiarism. We will like you peeps to know that deliberate plagiarism is not that you have to worry about. Rather the more explicit versions of plagiarism are accidental and self-plagiarism. If you have any confusion about the consequences and effects of accidental plagiarism, then know that all of the types of duplication have the same severe and ugly effects. Now just for your ease and reliable checking, we have gone through almost every tool on the web and have collected the details for the best tool on the web, which for your information belongs to the famous site better known as small SEO tools!

Plagiarism checker by Small SEO tools!

The plagiarism checker by SST is the best tool for students as it covers all the demands by the party; this tool is both free and accurate in its working and reliable in producing results after checking your work, assignments, and other academic papers. Now there are many features of the plagiarism checker by SST that makes it better and more convenient than any other tool on the web, below we have mentioned all of them in detail!

Features of the plagiarism scanner by SST!

Here is the detailed list of the checker software by small SEO tools!

Updated and large database!

The first feature that you need to know about this tool is that it does not cater on with aa saved database rather the database of this tool is spread over more than ten billions of web pages, and all of these pages and the content on them are updated on a regular interval which makes the tool capable of comparing your work with the more recent publishing. You won’t find another tool with a vaster and more updated database!

Automatic plagiarism fixing feature!

Now you guys should know that with the help of this plagiarism checker you cannot only check the content for duplication, but you can also remove it from it, if you find any phrases having duplication in them, then you can easily rephrase them with the help of this tool and within a few seconds. This is a unique feature of this plagiarism tool.

Advanced algorithms!

You guys should know that unlike other free and paid tools, this tool cannot miss the smallest details, and this is because of the algorithms and the technology it uses to check your work. The tool first of all splits and saves your work in small sets of words containing not more than four to six of them. These individual sets are then compared with the huge database of the tool, and in this way, even the smallest clues are collected, and even unintentional plagiarism can be detected.

There are many more features of the tool, including its detailed reports that you should know about, just go to https://smallseotools.com/plagiarism-checker/ and enjoy the features and the easy use of this tool for free!

Nestlé Nigeria Plc Q1’20 – Surge in operating expense drives margin decline

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Nestlé Nigeria Plc Q1’20 – Surge in operating expense drives margin decline
CardinalStone Research
Nestlé Nigeria Plc (NESTLE) has reported a 12.9% YoY decline in after-tax earnings to N11.2 billion in its unaudited financial statements for Q1’20.
In collating the results, NESTLE considered COVID-19 outbreak as a non-adjusting event because there was a robust business continuity plan in place to ensure uninterrupted supply of essential food and beverages to customers in the quarter.  

Key highlights:

  • NESTLE reported a 67bps increase in gross profit margin to 45.0%, aided by a 2.1% YoY contraction in cost of goods sold in the review quarter. Notably, the company continued to explore the use of local raw materials (i.e. soya bean, maize, cocoa, palm olein, and sorghum) in its production processes. This could slightly limit cost pressures from devaluation in the coming quarters, in our view
  • However, NESTLE reported a 2.0ppts contraction in operating profit margin to 24.9%, after a 6.5% YoY increase in distribution & marketing expense and a 53.1% YoY surge in administrative expense. Operating expense was the main pressure point in NESTLE’s Q1’20 results. This pressure is largely consistent with sustained double-digit inflation, increase in staff strength, and cost of training
  • The company reported a N21.1 billion operating cash flow in Q1’20 (Q1’19: N15.9 billion) despite some indications of working capital pressures in the reported numbers. Specifically, management estimated working capital at negative N10.7 billion in Q1’20 (vs. positive N4.6 billion in Q1’19)
  • NESTLE repaid N5.5 billion and N4.8 billion of intercompany and bank loans (respectively) during the review quarter, driving outstanding debt down to only N330.6 million in Q1’20 (vs. N7.7 billion in Q4’19). If the debt level is maintained, interest expense could be much lower in the coming quarters
  • NESTLE reported a N1.6 billion capital expenditure in Q1’20 (vs. N256.9 million in Q1’19). This increase in capital expenditure did not necessitate fresh inflows from borrowing in Q1’20, suggesting that the business may have leveraged internally generated cash for some projects

Please click here for the full result.

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