Up to US$1 trillion estimated brand value loss from COVID-19 globally
The brand value of the world’s 500 biggest companies, listed in the Brand Finance Global 500 2020 ranking, could fall by an estimated US$909 billion as a result of the Coronavirus outbreak.
Brand Finance has assessed the impact of COVID-19 based on the effect of the outbreak on enterprise value, compared to what it was on 1st January 2020. Based on this impact on enterprise value, Brand Finance estimated the likely impact on brand value for each sector. The industries have been classified into three categories – limited impact (0% brand value loss), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the severity of enterprise value loss observed for the sector in the period between January and March 2020.
Brand Finance has calculated that the utilities sector is likely to suffer limited impact as a result of the COVID-19 pandemic, with a 0% expected brand value change. The sector is largely sheltered as a result of the very nature of its operations with these brands providing an essential service to the global population, thus demand should not falter considerably. This, paired with the regulated structure of the sector and longer-term contracts, should ensure these brands have access to adequate supplies and equipment to continue operations. Nevertheless, utilities brands could still encounter problems with their supply chains and with weakened demand in the commercial and industrial segments.
Richard Haigh, Managing Director, Brand Finance, commented:
“The utilities sector is one of the few that should escape the far-reaching damage of the COVID-19 pandemic as the global population continues to rely on its services. This does not mean though that utilities brands are not facing their own battles, from increased concern around their operations, to the global shift towards clean energy. We are already witnessing some brands embrace this change with the introduction of their own clean energy goals, which will no doubt fare them favourably in the long run.”
State Grid powers ahead
China’s State Grid has retained the title of the world’s most valuable utilities brand for the third consecutive year, according to the Brand Finance Utilities 50 2020 report, after recording a 11% brand value increase to US$57.0 billion. Supplying power to over 1.1 billion people and covering 88% of Chinese national territory, State Grid is the largest utilities brand in the world. Its sheer size and dominance are reflected by the significant gap ahead of EDF (down 2% to US$11.9 billion) in second and Enel (up 14% to US$11.8 billion) in third.
The brand is increasing its focus on CSR initiatives, through funding charities and committing to poverty alleviation. State Grid has also supported China’s push to become a greener, more environmentally friendly nation, with a clear target to be the advocate and leader of Ubiquitous Electric Internet of Things.
The five further Chinese utilities brands in the ranking are performing similarly as solidly, with ENN (up 40% to US$2.1 billion) and Datang Power (up 36% to US$1.9 billion) as the third and fifth fastest growing brands in the ranking respectively.
US brands dominate
The US dominates with 20 brands claiming a position in the Brand Finance Utilities 50 2020 ranking, including three new entrants: Republic Services in 46th (brand value US$1.3 billion); Calpine in 48th (brand value US$1.3 billion); and AES Corporation in 49th (brand value US$1.1 billion). American utilities brands often operate on a regional level in contrast to their European counterparts, which have a more consolidated model. This is reflected by only 14 European brands featuring in the ranking.
Volatility in European market
While the impact from Covid-19 on European utilities may be limited, it will be vital for these brands to continue to reliably provide supply security. While the market has seen significant M&A activity in the last few years, this is likely to see a slowdown given the economic uncertainty in the global economy.
Several brands are also concurrently seeing changes to their top management with CEOs stepping down, including Engie’s (up 7% to US$11.1 billion), Fortum’s and Centrica’s - adding to the uncertain operating environment.
All three German brands in the ranking are the fastest falling this year: EnBW (down 19% to US$1.4 billion); Innogy (down 17% to US$4.5 billion); and E.ON (down 11% to US$3.0 billion).
All three brands’ forecast revenues are lower than in previous years, thus damaging their brand values. As with other utilities brands throughout the EU, EnBW, Innogy and E.ON are negotiating the EU’s decarbonisation efforts, which have led to brands abandoning or reducing their nuclear and coal arms for clean energy sources – potentially causing a drop in forecast revenue. EnBW doubled its offshore wind capacity in Europe in 2019, however, and has set its sights on expanding its wind operations on both coasts of the US, a key market for the sector.
KEPCO is world’s strongest utilities brand
In addition to measuring overall brand value, Brand Finance also evaluates the relative strength of brands, based on factors such as marketing investment, customer familiarity, staff satisfaction, and corporate reputation. Alongside revenue forecasts, brand strength is a crucial driver of brand value. According to these criteria, KEPCO (up 11% to US$7.5 billion) is the world’s strongest utilities brand with a Brand Strength Index (BSI) score of 87.4 out of 100 and a corresponding AAA brand strength rating.
KEPCO prides itself on being one of the world’s leading brands in spearheading the shift and expansion towards the use of safe and clean energy, in its bid to reduce carbon emissions and tackle the global climate change issue. The South Korean brand has strived towards its CSR initiatives as part of its wider goal to become a sustainable global utility brand and has been recognised internationally for its efforts.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 50 most valuable Belgian brands are included in the Brand Finance Utilities 50 2020 report.
Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.
Additional insights, charts, and more information about the methodology, as well as definitions of key terms are available in the Brand Finance Utilities 50 2020 report.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
M: +44 (0)7939 118 932
About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Brand Finance has assessed the impact of the COVID-19 outbreak based on the effect of the outbreak on enterprise value, compared to what it was on 1st January 2020. Based on this impact on enterprise value, Brand Finance estimated the likely impact on brand value for each sector. The industries have been classified into three categories – limited impact (0% brand value loss), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the severity of enterprise value loss observed for the sector in the period between January and March 2020
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.