Bright 2011 outlook in advertising industry

By Patrick Githinji

Firms are poised to significantly increase advertising budgets this year as the Government plans to offload its stake in three commercial banks and five sugar companies.

The process is likely to compel stockbrokers and state-controlled privatisation organs to unveil marketing campaigns aimed at attracting new investors.

According to the Synovate Group Managing Director, George Waititu, the planned privatisation transactions would attract newcomers in the advertising arena. "You realise that these companies do not advertise regularly, but because they want the Initial Public Offering to be oversubscribed they have to buy more space in media," said Waititu.

He added that companies had begun appreciating advertising after noticing the returns. Key firms that are likely to revise upwards their advertising spend include telecoms, financial sector operators as well as the retail players.

For the last one year, the communications sector has been very competitive, a development that has been projected to deepen even further this year. Analysts say the much-anticipated reduction of SMS prices by the telecoms regulator, the Communication Commission of Kenya (CCK) will be the key factor. Probably the key driver this year will be the branding of Airtel in a bid to reinforce the new brand name to its subscribers.

"Airtel is expected to unveil a new campaign to woo more subscribers," an industry insider told Financial Journal.

Other telecom operators such as yu and Orange are expected to push for more publicity of their mobile money transfer services.

To corroborate the bright outlook for the advertising sector, pay televisions operators will also be battling for the expanding market opportunities. The new entrant in the sector, Smart TV is anticipated to give headache to Multichoice Kenya in terms of programming and pricing.

Indeed the war was was evident last month, when these two companies splashed adverts in leading media houses. The pay TV ad campaigns are expected to resume after the first quarter of the year.

In addition, the Government will be pumping millions of shillings in advertising as it seeks to create awareness to the public on the new Constitution.

Indications are high that advertising firms will also be strengthening their financial muscles as they prepare to battle for critical assignments in the private and public sectors. This will be boosted by the bright economic outlook, which has been projected to expand to five per cent this year by the International Monetary Fund.

Last year, companies spent about Sh43.6 billion on advertising in the 11 months to November, beating the total annual spend in previous years. According to Synovate, total ad spend on radio, television, print media, and outdoor media excluding discounts closed at Sh20.4 billion and Sh31.4 billion in 2008 and 2009 respectively.

The growth in advertising is set to translate into high earnings for investors in media and advertising companies as they continue to post double-digit growth in profits.

Last year, media firms listed at the Nairobi Stock Exchange Nation Media Group, the Standard Group and Scangroup reported robust returns for the half-year period that ended on June 30th.

The Standard Group, which owns the Standard Newspapers, television channel KTN and Radio Maisha, reported a 139 per cent growth in pre-tax profits to Sh216.7 million in the six months of the year from Sh90.5 million the previous year on the back of 14 per cent revenue growth to Sh1.5 billion.

The only listed advertising firm Scangroup reported a 36.4 per cent growth in net profits to reach Sh200.2 million in a similar period from Sh146.7 million last year.

Apart from prospects of a higher dividend payout early next year, investors who bought into the media firms over a year ago have recorded significant capital gains.

Business environment

"The business environment is better than in the past two years which suffered from the lingering effects of the 2008 post-election violence," Waititu said.

The rising ad spend comes at a time when the country is recording an increase in consumer spending on increased activity in the economy and boost in household lending.

Synovate data shows telecoms, financial institutions and fast moving consumer goods manufacturers maintained their status as corporate Kenya’s largest advertisers, increasing their spend month-on-month.

Telecoms firms are the top advertisers for the 11 months at Sh8.4 billion, accounting for one out of every Sh5 worth of advertisement.