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Nestle India ad and sales promotion expenses up 44% in 2018

Nestle India has seen average PAT of 10.33 of operating revenue over the past 6 years.

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BENGALURU: Food and Beverages major Nestle India Ltd (Nestle India) spent Rs 729.44 crore or 6.46 percent of its operating revenue towards advertisement and sales promotion expenses for the year ended 31 December 2018. This was the highest spends towards ad and sales promotion (promo) by the company in absolute terms – in terms of percentage of operating revenue, this was the highest percentage that Nestle India has spent towards ad and sales promotion since 2013. Nestle’s India’s ad and sales promotion spends in 2018 were 44.16 percent higher than the Rs 506 crore (4.96 percent of operating revenue).

The figures below indicate Nestle India’s operating revenue and ad and sales promotion expenses growth. The number for 2014 in the first chart is with respect to the number for 2013.

In 2017, the company claimed in an annual report, that it was the first purely food and beverages company in India to cross the milestone of operating revenue of Rs 10,000 crore (Rs 100 billion). The company had reported operating revenue of Rs 10,192.18 crore for 2017.

Nestle India has been a profitable company with average profit after taxes (PAT) of 10.33 percent of operating revenue over the past 6 years (from 2013 to 2018) despite a downturn in 2015. In 2015, the company had a huge setback due to one of its biggest products – noodles sold under the Maggi brand. Operating revenue, profit after tax plummeted. The company had to spend more towards ad and sales promotion for damage control. If one were to neglect the numbers for 2015, the company’s average operating profit was 12.22 percent of operating revenue during five years from 2014 to 2018 excluding 2015.  Its PAT of Rs 1,606.9 crore in 2018 has been the highest in terms of rupees as per well as in terms of percentage of operating revenue at 14.23 percent during the period under consideration.

When comparing Nestle India’s ad and sales promotion expenses with PAT, the average ad and sales promotion spends during the six year period between 2014 and 2018 was 50.48 percent of PAT. If one were to neglect the numbers for 2015 during which the company spent an equivalent of 93.27 percent of its PAT towards ad and sales promotion, the five year average works out to 41.92 percent.

Company speak

Nestle India chairman and managing director Suresh Narayanan said in the company’s annual report, “2018 has been memorable and a year of many ‘firsts’. We started the year on a bright note, as by the end of 2017 we became the first listed pure play food and beverage Company in India to reach a milestone crossing Rs 10,000 crore in revenue. This historic milestone signifies the strength of our 106-year old business in India and will serve as a moment of inspiration as we continue to build for a healthier future. It is clear that a healthier future requires a healthier business and a healthier society, and my team and I are fully committed to this. We continued to build trust with consumers and communities by being responsible, transparent and maintained our focus on building long term relationships.”

“Consumers have always been at the heart of our initiatives. We continued to offer exciting new product categories by introducing NESPLUS Breakfast Cereals, MAGGI Nutri-licious Baked Noodles, MAGGI Dip & Spread, NESCAFÉ Ready-to-Drink Cans, NESCAFÉ É Smart Coffee Machine and EVERYDAY Chai Life,” added Narayanan.

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