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Energy market: an eager contributor to development

Economic development concerns a wide range of aspects, including electricity. Meeting increasing demands for electricity, mostly through new power plants, is seen to support such development. Otherwise, development might stall.

As the country’s centralized venue for electricity trading, the Wholesale Electricity Spot Market (WESM) plays significant roles in supporting economic development by maintaining well-rounded efficiency and competition in the energy industry.

One of WESM’s primary roles is providing the mechanism for identifying the price of actual variations from the quantity transacted between sellers and purchasers of electricity.

As explained by Isidro E. Cacho, Jr., chief corporate strategy and communications officer, the WESM establishes prices according to location in the power grid, more known as nodal pricing. Every hour and, eventually, every five minutes — once the enhanced WESM design gets implemented — each generation offer submitted by generation companies (GenCos) is stacked in ascending order of prices; and the clearing price is set by the last offer that matches forecasted demand.

“The market nodal prices are then determined by adjusting the clearing price to reflect the economic cost of losses (transmission line losses) or congestion (transmission line capacity limitation) at each location,” it continued.

This information that WESM generates and provides helps investors ensure the viability of their investments in constructing new power plants, IEMOP stressed.

Specifically, the differences in nodal prices help investors identify where to construct new power plants or where to put up factories. The nodal prices also help in determining the expansion or planning for new transmission lines.

“With the transparency required in the WESM, investors have available information on the level of competition in the electricity market as well as expected revenues based on published prices,” IEMOP explained. “These information help investors identify what level of capacity may be needed to be constructed and when to construct these new power plants.”

It is this transparency in the spot market, coupled with trust in WESM’s market operator, the Independent Electricity Market Operator in the Philippines (IEMOP), which ensures that market participants have enough confidence to invest and conduct their transactions in the Philippine electricity market with the WESM.

“It’s all about having those two — trust and confidence — in the market as well as the entity operating it, that there will be consistency in applying the rules and enable the market participants to manage the market volatility with some certainty,” IEMOP emphasized.

WESM also allows customer participants to choose the optimal sourcing of electricity that will benefit their end-users, while it allows GenCos and their investors to sell their electricity even without a contract.

“This allows everyone to participate in the market in a reasonable manner that ensures competitive pricing in the short-term and security of supply of electricity for the country in the long-term. This then translates to growth and support for economic development,” it continued.

Progress amid pandemic

Such development was recognized by IEMOP as he cited recent figures from the Department of Energy (DoE), which indicated that the country’s power demand rose 5.3% in 2019.

For IEMOP, this growth of electricity demand generally reflects the country’s gross domestic product (up by 6.4% in the fourth quarter of 2019 according to the Philippine Statistics Agency) and consequently indicated a movement towards economic growth. It was also recognized, however, that both economic growth and electric demand were dampened by the coronavirus disease 2019 (COVID-19) pandemic. 

Nonetheless, IEMOP noted, operations in WESM continue in spite of comparatively low market prices; while GenCos and suppliers were able to provide a secure amount of supply in the market regardless of pandemic-impacted revenues. Furthermore, IEMOP, as the market operator of the spot market, ensured business continuity.

“We can also say that the power industry players and the market operator, together with their relentless drive to ensure that each household is being supplied with electricity, can be deemed as major contributors in the country especially now that most people are working from the comforts of their own homes,” it added.

Advancing renewable energy

Meeting increasing demands for electricity is not only the pressing concern within the industry but also accelerating the transition to renewable energy. At present, DoE continues to implement the provisions of the Renewable Energy Law, with the recent developments for the Renewable Energy Market (REM) and the Green Energy Option Program (GEOP).

IEMOP, with its roles of scheduling generating plants and determining spot prices, has a major role to play in advancing this transition. “Under GEOP, IEMOP, as the Central Registration Body for the retail electricity market, is mandated to facilitate the supply by Renewable Energy Suppliers to end-users of electricity from renewable energy,” Jonathan B. de la Viña, market operations development manager, explained. “Under these mandates, IEMOP shall ensure that market principles are applied in their implementation.”

Since the incentives for additional renewable energy resources will add capacity to the grid, he continued, he believes that the implementation of these programs would further competition within the electricity market. 

In addition, with the Renewable Portfolio Standards expected to be fully implemented, requiring electricity suppliers to source a portion of their sales from renewable energy, IEMOP also believes that the entire industry will follow suit in the move to renewable energy.

Aside from the uptrend in renewable energy, IEMOP also finds that in order for the industry to continue contributing to economic development, it needs to evolve further by enabling all market participants to have a transparent mechanism to manage risks in terms of their exposures to the spot market and the performance of their generating units.

“This, in turn, leads to further investments and support for the growth of the economy and ensures the security of supply for all Filipinos in the medium- and long-term horizon,” it said.

BSP sets cap on credit card charges

Credit card issuers can no longer charge interest rates of more than 2% a month or a total of 24% a year on unpaid outstanding credit card balances starting Nov. 3, 2020, the central bank said. — REUTERS

By Luz Wendy T. Noble, Reporter

THE central bank approved an annual interest rate ceiling of 24% for all credit card transactions starting Nov. 3.

This means credit card issuers can only charge interest rates of up to two percent a month on unpaid outstanding credit card balances.

“The interest rate cap on credit card receivables aims to ease the financial burden of consumers and micro, small and medium enterprises amid a difficult economic environment caused by the COVID-19 pandemic,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in an online briefing on Thursday.

The BSP also set the limit for monthly add-on rates for credit card installment loans at one percent.

Credit card issuers also cannot impose other charges on credit card cash advances except for a maximum processing fee of P200 per transaction, the central bank said.

“Based on our data, average annualized interest rate for credit card receivables range from 18% to 58% from January to June 2020,” BSP Director for Supervisory Policy and Research Department Veronica B. Bayangos said in the same briefing.

“Based on the credit card business activity report, the average annualized interest rate for both premium and non-premium as of June 2020 was around 26%,” Ms. Bayangos added.

The cap on credit card charges takes effect on Nov. 3, but will be reviewed by the BSP every six months.

“We are confident that the banks will comply. Because before we issued this policy, we coordinated with our counterparts in the Bankers Association of the Philippines and they supported this policy,” Ms. Bayangos said.

“We also coordinated this policy approach with the Credit Card Association of the Philippines so we do not expect any non-compliance from this policy approach,” she added.

The central bank also said the maximum ceiling on interest or finance charges on credit card transactions is in line with the current low interest rate environment. The BSP’s overnight reverse repurchase facility is at a low of 2.25%.

Under the Republic Act. No. 10870 or the Philippine Credit Card Industry Regulation Law, the BSP has the supervisory authority over all credit card issuers.

Converge ICT’s IPO gets regulator approval

INTERNET provider Converge ICT Solutions, Inc.’s initial public offering (IPO), which may raise up to P41.55 billion, has received the go signal from the Securities and Exchange Commission. (SEC).

In a statement on Thursday, the corporate regulator said it approved the application of Converge ICT to raise funds through an IPO and to list its shares at the main board of the Philippine Stock Exchange.

The company is planning to offer up to 1,731,064,536 shares, composed of 480,839,941 shares for the primary offering, 1,024,433,569 shares for the secondary offering, and 225,791,026 shares as an overallotment option.

Converge ICT may offer the shares up to P24 each, which would raise about P11.07 billion from the primary offering, and P41.55 billion from the total offering if the overallotment option is maximized.

If the IPO pushes through, Converge ICT would be the second to do a public listing in 2020, after grocery operator MerryMart Consumer Corp.

The company intends to use about 90% of the offer’s net proceeds to support capital expenditures as it expands nationwide. Converge ICT currently offers its services only in Luzon.

Morgan Stanley Asia (Singapore) Pte. and UBS AG Singapore Branch have been tapped as joint global coordinators and joint bookrunners for the offering. Credit Suisse (Singapore) Ltd. and Merrill Lynch (Singapore) Pte. Ltd. will be international joint bookrunners.

For local investors, Converge ICT assigned BPI Capital Corp. as sole local coordinator, and with BDO Capital & Investment Corp., as joint local underwriter and bookrunner. Also acting as local participating underwriters are Asia United Bank Corp., First Metro Investment Corp., Maybank ATR Kim Eng Capital Partners, Inc., PNB Capital and Investment Corp. and RCBC Capital Corp.

When Converge ICT filed its application with the SEC in July, Bloomberg said the planned IPO — then estimated at P35.92 billion — would be the Philippines’ biggest public offering to date.

Converge ICT is owned by Pampanga-based businessman Dennis Anthony H. Uy. It received a $225-million equity funding from private equity firm Warburg Pincus last year.

The company posted a 45% income growth to P1.26 billion in the first semester. Its revenues jumped 65% to P6.49 billion due to the increase in subscribers to 4.1 million as of June. — Denise A. Valdez

S&P sees PHL economy performing worst in SE Asia

The Philippines is projected to have the worst-performing economy in Southeast Asia this year, as coronavirus disease 2019 infections continue to rise. — PHILIPPINE STAR/MICHAEL VARCAS

S&P GLOBAL RATINGS expects the Philippine economy to shrink by 9.5% this year — the worst in Southeast Asia, due to the “stubbornly high” coronavirus disease 2019 (COVID-19) infections and low fiscal support.

At the same time, the ASEAN+3 Macroeconomic Research Office (AMRO) revised its Philippine gross domestic product (GDP) forecast to -7.6% this year, although this is only the second worst in the region following Thailand.

Both S&P and AMRO’s projections are worse than the government’s -4.5% to -6.6% outlook for this year.

AMRO downgrades already gloomy outlook for ASEAN+3 economies for 2020

“We revise our 2020 growth forecast to -9.5% (previously -3%) with minimal changes to subsequent years, implying a larger permanent loss in output,” S&P said in a report released on Thursday.

The debt watcher’s outlook for the Philippine economy is the lowest among the 14 economies in its report, followed by India’s -9%. Other Southeast Asian countries are seen to fare better such as Thailand and Hong Kong (-7.2%), Singapore (-5.8%), Malaysia (-5%) and Indonesia (-1.1%). Only Vietnam (1.9%) is expected to see growth among Southeast Asian economies.

“Renewed lockdowns from August in major metropolitan areas, including Metro Manila, together with lingering household caution amid stubbornly high COVID-19 infection rates and limited fiscal policy support are suppressing consumer spending and resulting in widespread job losses,” S&P said.

As of Thursday, total confirmed COVID-19 cases in the Philippines stood at 296,755, still the highest in Southeast Asia.

President Rodrigo R. Duterte earlier this month signed the Bayanihan to Recover as One Act, touted as a P165.5-billion stimulus package. It is the sequel to Bayanihan I which allocated P275 billion for the pandemic response in March.

S&P expects the Philippine economy to bounce back with a 9.6% growth in 2021, faster than its earlier 9.4% estimate.

“However, we expect permanent damage to corporate sector balance sheets and the labor market, which will leave (gross domestic product) well short of where it would likely have been in the absence of COVID,” it said.

S&P said it is still pricing in two more rate cuts from the Bangko Sentral ng Pilipinas this year before it goes for a “fairly long pause.”

The central bank will have three more policy setting reviews this year falling on Oct. 1, Nov. 19, and Dec. 17. The Monetary Board has so far slashed rates by a total of 175 basis points this year, bringing down the reverse repurchase, lending, and deposit rates to record lows of 2.25%, 2.75%, and 1.75%, respectively.

For Asia-Pacific, S&P expects the region’s economies to shrink by 2% in 2020 and grow by 6.9% next year, which would still be 5% lower than pre-COVID trend by end-2021. China will lead the region’s “uneven recovery,” with 2.1% GDP growth this year.

“The pandemic is not over but the worst of its economic impact has passed. Governments are adopting more targeted strategies for flattening COVID-19 curves, with less recourse to nationwide lockdowns. Households are spending again on services as well as goods,” Shaun Roache, Asia-Pacific chief economist for S&P Global Ratings, said in a statement.

Meanwhile, AMRO’s latest -7.6% projection for the Philippines (from -6.6% in August) is the second steepest slump projected among ASEAN+3 economies, after Thailand (-7.8%).

“The downgrade of growth forecast for 2020 mainly reflects the impact from the reimposition of the lockdown measures since early August,” Zhiwen Jiao, AMRO’s country economist for the Philippines, said in an e-mail.

AMRO also sees the Philippine economy to grow by 6.6% in 2021, although the recovery to bring back GDP to its pre-pandemic level may take until 2022.

“Going forward, the trajectory and pace of the recovery will hinge on the development of the COVID-19 pandemic, the recovery of global economy and policy responses,” Mr. Jiao said.

AMRO said it expects the ASEAN region to contract by 3.3% this year before rebounding to 6% in 2021. — Luz Wendy T. Noble and Beatrice M. Laforga

Business expectations survey (Q3 2020)

CONFIDENCE among Filipino consumers fell to a record low in the third quarter, while businesses were at their most pessimistic in over 11 years, as the pandemic took its toll on the economy, the latest surveys by the Bangko Sentral ng Pilipinas (BSP) showed. Read the full story.

Business expectations survey (Q3 2020)

Consumer confidence plummets to record low

Consumer confidence reached a record low in the third quarter, while business sentiment was at its most pessimistic in over 11 years due to worries over the pandemic-induced recession. — PHILIPPINE STAR/MICHAEL VARCAS

CONFIDENCE among Filipino consumers fell to a record low in the third quarter, while businesses were at their most pessimistic in over 11 years, as the pandemic took its toll on the economy, the latest surveys by the Bangko Sentral ng Pilipinas (BSP) showed.

Consumers’ current quarter confidence index (CI) dropped to -54.5%, the lowest since the nationwide survey started in the first quarter of 2007, according to the BSP.

Business confidence also slid into negative territory at -5.3%, its lowest since the -23.9% logged in the first quarter of 2009 amid the global financial crisis.

Business expectations survey (Q3 2020)

The central bank did not conduct the survey in the second quarter due to the lockdown restrictions imposed to curb the spread of the coronavirus disease 2019 (COVID-19).

“[For consumers], the negative sentiment was attributed to COVID-19 pandemic. Other reasons cited by respondents were the following: high unemployment rate and less working family members, low and reduced income, and faster increase in the prices of goods,” BSP Department of Economic Statistics Director Redentor Paolo M. Alegre, Jr. said in an online briefing on Thursday.

Filipino consumers continue to be pessimistic for the fourth quarter, with the CI falling to negative territory at -4.1%. Their spending outlook also hit a record low to 26.4%, “indicating a contraction in consumer spending” during the holiday season.

However, consumers are more optimistic for the next 12 months with the CI at 25.5% against the 19.9% seen in the Q1 survey for the next 12 months.

“The consumer outlook was more upbeat for the next 12 months due to expectations of an end in the COVID-19 pandemic or return to normal as well as the consumers’ anticipation of the following: availability of more jobs; additional or high income, and stable prices of goods,” the BSP said.

SHAKY BUSINESS CONFIDENCE
Meanwhile, business confidence turned negative in the third quarter, as many companies were affected by the pandemic and economic slowdown.

“They noted a decrease in orders, sales and income, slowdown and temporary shutdown in business operations, and some concerns over government policies in dealing COVID-19,” Mr. Alegre said.

For the fourth quarter, business sentiment remained sluggish, with the CI falling to 16.8% against the 42.3% in the first quarter survey.

“Respondents’ less buoyant outlook for (fourth quarter 2020) was associated mainly with expectations of the continuing negative effects of the COVID-19 pandemic affecting the volume of orders, sales, and income, and overall economic activity, in general,” the BSP said.

“Similarly, business outlook on the country’s economy was less upbeat for the next 12 months as the CI declined to 37.5% from 55.8% in Q1 2020 survey results.”

The employment outlook index for the next quarter and the next 12 months were also grim at -5.5% and -2.1%, which could mean more layoffs in the coming months.

The business expectations survey was conducted from July 8 to Sept. 10 among 1,517 firms, while the consumer expectations survey covered 5,563 households from July 1-14. — Luz Wendy T. Noble

AMRO downgrades already gloomy outlook for ASEAN+3 economies for 2020

S&P GLOBAL RATINGS expects the Philippine economy to shrink by 9.5% this year — the worst in Southeast Asia, due to the “stubbornly high” coronavirus disease 2019 (COVID-19) infections and low fiscal support. Read the full story.

AMRO downgrades already gloomy outlook for ASEAN+3 economies for 2020

Yuan decouples from Asian peers as two-speed recovery takes hold

COUNTING on China as an anchor of strength has been a good tactic for traders of Asia’s emerging currencies. That link is losing traction as recovery paths from the coronavirus pandemic diverge.

While China’s economy has bounced back from the coronavirus crisis, as shown by data such as retail sales and industrial production, countries including Indonesia and the Philippines are still grappling with rising outbreaks. The 30-day correlation between the offshore yuan and six regional counterparts has declined in the past week as the Chinese currency climbed to the strongest level in more than a year.

Asia’s two-speed recovery is making it difficult to predict the fortunes of the region’s exchange rates amid mounting headwinds ranging from US-China tensions to the American presidential election. The Asian Development Bank expects China to avoid an economic contraction this year, while developing nations in the region as a whole will see their economies shrink for the first time since the early 1960s.

“Given that much of the strength in the yuan is related to China’s economic resilience, which has not been replicated in much of the rest of the Asia, this suggests that yuan appreciation is going to continue to have a less pronounced impact on Asian currencies,” said Mitul Kotecha, a senior emerging-markets strategist at TD Securities in Singapore. “Idiosyncratic factors have become more important for regional currencies.”

China’s gathering economic recovery has seen the offshore yuan strengthen 3.6% this quarter, beating all its developing Asian peers. The Malaysian ringgit is in second place, having gained almost 3%, while the currencies of Thailand and Indonesia, facing some of the largest economic challenges from the pandemic, have weakened.

The uneven nature of Asia’s recovery will generally be reflected in currency performance, according to Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore, who recently raised his year-end forecast for the onshore yuan to 6.7 per dollar from 6.85. 

“I see the trend continuing, probably into the second half of next year, and it will hinge on the success of any vaccine deployment or countries managing to bring the domestic outbreak down,” Goh said. “These will be key for getting the laggards to catch up.”

The yuan traded at 6.8197 per dollar Thursday after appreciating to 6.7501 on Sept. 17, the strongest since April 2019. While the currency has pulled back from its highs following weaker-than-expected fixings in the past few days, it’s still on track for the biggest three-month gain since March 2018.

The key exchange-rates to watch for signs of a breakdown in correlation with the yuan may be the ringgit, the South Korean won, and the Taiwan and Singapore dollars. A 1% move in the Chinese currency has previously led to an average 0.6% shift in these four currencies, according to a Bloomberg analysis.

While the yuan’s correlation with other emerging-Asian currencies seems to be breaking down, its relationship with those in the Group-of-10 countries appears to be rising. The Chinese currency is increasingly influencing weekly price changes in the pound and commodity-linked currencies such as the Australian, New Zealand and Canadian dollars, according to HSBC Holdings Plc.

Domestic risks are likely to hinder emerging Asian currencies from keeping pace with the yuan, even as the Chinese currency’s strength and the weakening dollar create a favorable environment, said Terence Wu, a currency strategist at Oversea-Chinese Banking Corp. in Singapore.

Weak exports will probably damp sentiment toward the won, while debt monetization concerns weigh on the Indonesian rupiah, and the rupee will be hurt by India’s worsening virus outbreak, he said.

“The macro recovery in the rest of Asia has been choppy and uncertain at best, and there is also no strong portfolio inflow momentum,” Wu said. “These factors will cause the rest of the Asian currencies to lag behind.” — Bloomberg

Lopez steps down from ABS-CBN, other firms

ABS-CBN Corp. announced Thursday the resignation of its chairman emeritus and director, Eugenio Gabriel “Gabby” L. Lopez III, more than three months after a House panel denied the television network’s application for a broadcast franchise.

Mr. Lopez also stepped down as director of ABS-CBN Holdings Corp., Sky Vision Corp., Sky Cable Corp., First Philippine Holdings Corp., First Gen Corp., and Rockwell Land Corp.

Mr. Lopez cited “personal reasons” for his resignation, which is effective immediately, ABS-CBN said in an e-mailed statement.

The company said Mario Luza Bautista has been elected to take over Mr. Lopez’s position on the board.

Mr. Bautista, who is also a board adviser of the First Philippine Holdings, has “served as the general counsel of the company and a member of the Board of Advisors of the company since 2011,” ABS-CBN said.

“He is a founding partner of the Poblador Bautista and Reyes Law Office and has been its managing partner since 1999,” it added.

ABS-CBN President and Chief Executive Officer Carlo L. Katigbak said at the company’s annual stockholders’ meeting held on the same day that the denial of the broadcaster’s franchise bid had resulted in the retrenchment of nealy 5,000 employees.

Mr. Katigbak added the company continues to face difficult times, but he is confident it will be able to survive the challenges.

“Our history has shown that ABS-CBN’s burning passion for the service of the Filipino cannot be extinguished,” he noted.

ABS-CBN recently reported an attributable net loss of P3.16 billion for the second quarter, swinging from a profit of P695.80 million in the same period last year.

The company said its advertising revenues suffered a sharp decline during the period  following the issuance on May 5 by the National Telecommunications Commission of a cease-and-desist order against its broadcast operations.

ABS-CBN’s total revenues for the second quarter dropped 55.17% to P4.68 billion from P10.44 posted in the same period last year.

The company has said it would continue to operate in other businesses that do not require a broadcast franchise, namely: international licensing and distribution, digital and cable businesses, and syndication of content through streaming services.

President Rodrigo R. Duterte had openly criticized the media company for allegedly refusing to run his political ads during the 2016 presidential campaign. He had threatened to block the renewal of the broadcaster’s legislative franchise. — Arjay L. Balinbin

Malampaya extension plan still a go if operator exits — Cusi

THE consortium involved in developing the country’s sole natural gas field will still proceed in applying for the project’s extension despite the imminent exit of its operator.

Shell Philippines Exploration B.V. (SPEx) on late Wednesday said it was considering the sale of its 45% stake in the Malampaya gas-to-power project under state-awarded Service Contract (SC) 38 as part of its rationalization efforts.

“As part of an ongoing portfolio rationalization to simplify and increase the resilience of its business, Shell is exploring its options with a view to divest its interest in SC 38 (Malampaya),” SPEx General Manager Rolando J. Paulino, Jr. said in a statement.

But its upcoming exit in the project will not affect the Malampaya consortium’s plan to apply for the extension of its operations beyond 2024, according to the Department of Energy (DoE).

“Even if [S]hell is planning to sell their share, the consortium will proceed with their application for extension or new contract,” Energy Secretary Alfonso G. Cusi told BusinessWorld in a mobile message.

SPEx heads the group behind the deepwater natural gas field near Palawan island, along with Dennis A. Uy’s UC Malampaya Philippines Pte Ltd., which acquired the 45% interest of Chevron Malampaya LLC in March. Government-owned Philippine National Oil Co. Exploration Corp. (PNOC-EC) holds the remaining 10% stake.

The consortium claims gas resources can still be tapped from the field beyond the end of its contract period. It has yet to disclose when it plans to formally file a contract extension.

Meanwhile, SPEx will “ensure a smooth transition of the asset to a credible buyer who would be well placed to optimize the value from Malampaya,” according to Mr. Paulino

“The Philippines remains an important country for Shell after over a century of successful operations, and Shell will continue to pursue opportunities where it can leverage its global expertise in line with its strategy,” he added.

The crash in refining margins as an impact of the global coronavirus disease led Pilipinas Shell Petroleum Corp. last month to announce the permanent shutdown of its 110,000-barrels-per-day refinery in Tabangao, Batangas. The plant will be converted into an import terminal so it can continue to supply petroleum products in Luzon and the northern Visayas.

Shares in Pilipinas Shell inched down 0.71% to close at P16.84 each on Thursday.

DEPLETING NATURAL GAS RESERVES
According to the DoE, the Malampaya natural gas field is projected to be completely depleted in 2027.

PNOC-EC, where Mr. Cusi is the ex-officio board chairman, is preparing a study on the country’s various sedimentary basins with potential gas and oil resources that can replace the Malampaya reserves.

Year-to-date, the Philippines is able to produce 73,388 million standard cubic feet (mmcsf) of natural gas, while consumption stands at 69,856 mmcsf, based on DoE’s latest monitoring.

The Malampaya field provides 3,200 megawatts of power, which accounts for 21.1% of the country’s gross power generation in 2019.

Rotational brownouts in Luzon are feared if the dwindling supply in the natural gas depot is left unresolved, Senator Sherwin T. Gatchalian said in a statement over the weekend.

Besides locating other indigenous natural gas spots, the country is also looking to import more liquefied natural gas (LNG) supplies.

Four private groups have applied with the government for the construction of imported LNG terminals, including a group led by businessman Lucio C. Tan and the Lopezes’ First Gen Corp. — Adam J. Ang

Want people to watch your ad? Don’t mention COVID

THE YEAR 2020 is when everything changed, when things ranging from how people shop, work, socialize, and study have been affected by the coronavirus disease 2019 (COVID-19) virus. The same goes with how ads are now made, what message they transmit to their customers, and how they incorporate this new, pandemic-laden reality, into the world of targeted storytelling.

“I think one of the big questions we get asked a lot is ‘how should my brand treat COVID-19 (coronavirus disease 2019): do we need to address it directly? Do we need to talk about it in context? And what behaviors can we display or not display,’” Ben Jones, global creative director, for Unskippable Labs, said in a press conference held after YouTube Brandcast 2020.

YouTube Brandcast is the video-sharing platform’s annual event targeted toward brands while Unskippable Labs is Google’s program that “help[s] brands figure out what type of creatives work on YouTube,” according to its website.

“The challenge of that is there’s this overwhelming human context that we’re all in — we’re all experiencing this — and yet our experiences have a lot of nuance to them,” Mr. Jones explained.

But what kinds of ads make people want to watch and not skip? Mr. Jones said these are “ads [that] made no reference to the crisis at all” and made an example of the recent Nike ad titled, You Can’t Stop Us, which featured existing videos of athletes and how they can’t be stopped and that every adversity makes them come back stronger. Nike, in the video, explained that “if you have a body, you are an athlete.” The video has been viewed almost 60 million times and was uploaded last month.

“The top pool of ads made no reference to the crisis at all. They didn’t depict behaviors that were specific to the crisis. They didn’t talk about it directly. So what we saw is that many brands who are trying hard to make reference to the crisis were losing track of their own brand,” he explained.

Reactions to ads that make direct mention of the pandemic are “so overwhelming that consumers were not remembering the brands that were in the ads.”

“You need to be extraordinarily humble, you need to understand what your role is in the lives of consumers and what products or services are interesting to them, but you don’t need to make the ads about COVID: you need to make your ads about your brand and the role you can productively play,” he said.

In the Philippines, milk brand Lactum created the ad Alagang Ramdam ng Bawat Pilipino in May in time for Mother’s Day. The ad narrated the story of a mother’s love and highlighted the heroic roles of moms who are also COVID-19 frontliners. The video has been viewed more than 19 million times. And while the ad talked about COVID-19, it did so in a way that did more than highlight the pandemic, it highlighted the strength of mothers who fight it and still take care of their families.

AD PRODUCTION IN THE TIME OF COVID-19
With the health restrictions that came with the management of the pandemic, the production of advertisements became tricky as gone are the days when large scale ads could shoot in a studio with numerous staff members. This means that creatives have to be more creative.

“On YouTube, we are seeing advertisers that are starting to make ads that anticipate and embrace this new reality. As many businesses continue to think about how to navigate these uncertain times, creatives are experimenting with different storytelling styles,” Mr. Jones said in a release.

“From reimagining existing assets, reinvigorating animation to miracles of editing that take our breath away, we are seeing ads that are both effective and distinctive despite the constraints,” he said.

During the conference, he noted that “more creative directors’ children are starring in ads than ever before” and the same goes for behind-the-scenes staffers who are now getting a shot in from the camera.

The pandemic also saw “an explosion of animation and CGI (computer-generated imagery)” especially in food brands as they “explore the deliciousness of their food in a way that doesn’t require people to get together.”

“A whole range of options are opening up, [and there are] new opportunities to be creative in different sorts of ways,” Mr. Jones said.

And in order to create effective ads in such a different time, he advised that creatives “explore new signals” and “look beyond basic demographic signals.”

Once brands have settled on their signals, the trick  is to “tune those stories based on those signals.”

“This doesn’t need to be a large change — you can use exactly the same video clip but in a different [way] that references the consumer context or creates a connection to their passion, and that can again increase creative effectiveness,” he explained.

Finally, it’s all about experimentation.

“This path of experimentation can open up a pretty extraordinary upside and allow you to build from a small base into a healthier place for your business,” he said. — Zsarlene B. Chua

Del Monte cuts net loss by 91% on better sales, non-recurring expenses

DEL MONTE Pacific Ltd. posted an attributable net loss of $3.25 million in the three months ending July, lower by 91% from last year’s $38.26-million loss, due to improved sales this year and expenses that were not carried over from last year.

The canned fruits manufacturer disclosed its first quarter results on Thursday, showing a 10% growth in gross revenues to $413.06 million. The company’s fiscal year begins in May, and the results reported reflect its performance from May to July 2020.

Aside from the improved sales, the company’s bottomline was lower year-on-year because of last year’s $39.6-million one-time expenses. These are related to the withholding taxes on Del Monte Philippines, Inc.’s payment of dividend to the parent company.

Del Monte said the coronavirus pandemic brought positive results for its business, as consumers showed increased demand for healthy products to combat the health crisis.

United States subsidiary Del Monte Foods, Inc. (DMFI) recorded an 11% sales growth to $268.2 million. When people were stuck at home due to the lockdown, consumers prepared their own food and bought up Del Monte’s vegetable, fruit, tomato, and broth products as ingredients.

In the Philippines, sales likewise grew 22% in dollar terms, lifted by increased volume, improved sales mix and better foreign exchange rates. Meal mixes, spaghetti sauce, and pineapple juice were the most prominent products as people heeded its supposed health benefits.

The company’s presence in other parts of the world similarly generated improved results. Gross profit in Asia Pacific grew 8% to $44.15 million, while Europe swung to a gross profit of $803,000 from last year’s loss of $1.04 million.

“We are encouraged by the sustained sales momentum in the first quarter, which is a testament to the strength of our brands and product portfolio, offering health and nutrition to consumers,” Del Monte Managing Director and CEO Joselito D Campos, Jr. said in a statement.

The company’s bottom line remains a loss, but Del Monte said this is due to the seasonality of its business, which usually makes the first quarter its lowest quarter of the year. Del Monte expects to return to profitability by the end of its fiscal year 2021.

“[Del Monte] is well-positioned in this environment given its nutritious long shelf-life products which enable consumers to prepare more meals at home… DMFI is also well-placed to improve performance [this year] with a more efficient supply chain due to the restructuring accomplished in the last fiscal year, better sales mix and management of costs,” it said.

“The [Del Monte] Group expects to return to profitability in fiscal year 2021, barring unforeseen circumstances,” it added.

Shares in Del Monte at the stock exchange closed at P4.75 apiece on Thursday, up 10 centavos or 2.15% from the last session. — Denise A. Valdez

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