1

Nielsen LankaFebruary 2017

2016 THE YEAR THAT WAS

2

What is happening in Sri Lanka in general?

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NEWS THAT MATTERED IN 2016Both positive and negative news came in over the last 12 months

Source: Lankabusinessonline.comJ

UL

AU

GS

EP

OC

TN

OV

DE

C

JA

NF

EB

MA

RA

PR

MA

YJ

UN

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SRI LANKA GROWTH SLOWED DOWN IN 2016Services are emerging as the major sector while Industries saw a fluctuation in growth, coming mainly from Construction. Agriculture sector continues to show a decline

Source: Department of Census and Statistics, Sri Lanka

7%

27%

58%

8%

8%

30%

57%

5%

Services

Industries

Agriculture

Taxes Less Subsidies

Inner Circle

Q1’15

Outer Circle

Q3’164.4

7.05.6

2.5

5.2

2.74.1

Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16

GDP Growth (Base Year - 2010)

-0.5

1.9 2.70.7

7.75.0

-6.0

2.24.8

-1.9

6.84.7

Agriculture Industries Services

GROWTH RATE % BY GDP SECTOR

SECTOR CONTRIBUTION % TO SRI LANKA GDP SRI LANKA GDP GROWTH RATE (VS SAME QUARTER LAST YEAR)

Q4’15 Q1’16 Q2’16 Q3’16 Q4’15 Q1’16 Q2’16 Q3’16

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MAJOR INDICES MOVED TOWARDS A WORRYING TREND The Colombo Stock Exchange declined 15%, Sri Lankan Rupee depreciated ~4% while Inflation and Interest Rates moved up

Sources: lk.duinvest.com (Colombo Stock Exchange), Dept. of Census and Statistics (Inflation); BBC Financial Data (Exchange Rate); Central Bank (Interest Rates)

COLOMBO STOCK EXCHANGE ASPI (JAN 2015 TO DEC 2016 TREND) INFLATION % (12 MONTH [ANNUAL] AVERAGE)

COMMERCIAL BANKS AVERAGE INTEREST RATES IN %USD-LKR EXCHANGE RATE

52 Week High:150.153, 52 Week Low: 143.9

0

4

8

12

16

Average Weighted Lending Rate Average Weighted Deposit Rate

-4

-2

0

2

4

6

8

Jan

'15

Feb

'15

Mar

'15

Ap

r'15

May

'15

Jun

'15

Jul'1

5

Au

g'15

Sep

'15

Oct

'15

No

v'15

Dec

'15

Jan

'16

Feb

'16

Mar

'16

Ap

r'16

May

'16

Jun

'16

Jul'1

6

Au

g'16

Sep

'16

Oct

'16

No

v'16

Dec

'16

Total Food Non Food

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THESE EVENTS & TRENDS IMPACTED CONFIDENCE LEVELS The highs on confidence from election results did not sustain with changes in tax policies and budget proposals. Business leaders expected more

Source: Nielsen Lanka CCI and BCI Surveys*BCI is based on survey of 100 Managers/Senior Executives or above in the city of Colombo carried out by Nielsen and is compiled through series of questions on business conditions and expectations

*CCI is based on survey of 100 respondents every month. From 2011 onwards Nielsen tracks the consumer confidence index every month among 100 consumers in Western, Central and Southern

provinces. Index is developed based on consumers’ confidence in the job market, status of their personal finances and readiness to spend.

0

50

100

150

200

250

Presidential Election 2015

Budget 2015

General Election 2015

Budget 2016

VAT Increase, Drought

Budget 2017, VAT Increase

BUSINESS CONFIDENCE INDEX TREND, CONSUMER CONFIDENCE INDEX TREND IN SRI LANKA

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CONCERNS DOMINATED MINDSPACE FOR CONSUMERS & BUSINESSESTaxes, policies, investments, job prospects were top of mind

Source: Word Cloud based on Nielsen Lanka Business Confidence Index and Consumer Confidence Index Survey

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WHAT ARE BUSINESSES SAYING ABOUT THE GENERAL ECONOMY?About 1 in 3 feel economy will improve in the next 12 months, while investment sentiments moved from ‘Fair’ to ‘Poor’

Source: Business Confidence Index Survey, Nielsen Lanka

32%

51%

49%

40%

Percentage of respondents who

see current investment climate

in the country as Fair or

Poor/Very Poor

Percentage of respondents who

expect Sri Lankan economy in

general to improve in the

coming 12 months

59% 59%

23%

40%

67%

24%

Economy Politics Corruption

Percentage of respondents

highlighting the three most

pressing National issues in

the current environment

Dec-1

5

Dec-1

6

Dec-1

5

Dec-1

6

Dec-1

5

Dec-1

6

ECONOMY PERFORMANCE INVESTMENT CLIMATE TOP NATIONAL ISSUES

Outer ring – Dec’16

Inner ring – Dec’15

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WHAT ARE LEADERS SAYING ON BUSINESS PROSPECTS?Lesser percentage of leaders are optimistic on business performance in 2017 and therefore wish to stall any workforce expansion. Taxes remain as biggest concerns

Source: Business Confidence Index Survey, Nielsen Lanka

39%

61%

27%

59%

14%

33%

Percentage of respondents

saying company planning to

Increase / Maintain / or

Decrease its workforce in the

coming 6 months

Percentage of respondents who

expect their business to get

better in the coming 12 months

86%

42%35%

83%

37% 29%

Taxes Inflation Interest Rates

Percentage of respondents

highlighting the three most

pressing issues for their

business in Sri Lanka

Dec-1

5

Dec-1

6

Dec-1

5

Dec-1

6

Dec-1

5

Dec-1

6

BUSINESS PERFORMANCE WORKFORCE EXPANSION TOP BUSINESS ISSUES

Outer ring – Dec’16

Inner ring – Dec’15

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WHAT ARE CONSUMERS SAYING?Consumers are concerned with the inflation and say they will delay plans of purchasing durables and reduce spends on utilities and telecommunication

Source: Consumer Confidence Index Survey, Nielsen Lanka

3%12%

32%

7%19%

40%

Political Stability Increasing Utility Bills2 Children's Education /Welfare

Percentage of respondents highlighting consumer concerns

Dec-1

5

Dec-1

6

Dec-1

5

Dec-1

6

Dec-1

5

Dec-1

6

CONSUMER CONCERNS SHOWING BIGGEST JUMPS OVER A YEAR

12%

26%

40%31%

0%

42%

17%26%

Food Items Household Durables Utilities Telecommunication

Percentage of respondents for change in consumption patterns

due to increase in VAT and Other Taxes

CONSUMER REACTION ON CONSUMPTION DUE TO INCREASE IN

VAT AND OTHER TAXES

Will spend LESS than before

Will spend SIGNIFICANTLY LESS than before

11

What are the trends in the Fast Moving Consumer Goods industry?

F G226 Bn LKR 259Thousand 7%

FMCG Value Sales in

General Trade for Sri Lanka,

Year 2016

FMCG General Trade

Universe in Sri Lanka, Year

2016

FMCG Value

Sales Growth in

Sri Lanka, Year

2016 over Year

2015

Source: Nielsen Sri Lanka, RMS Data, for All FMCG (33 Categories including Soft Drinks), from General Trade, Year 2016, New Universe Data

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INFLATION DROVE GROWTH IN 2016 AS CONSUMPTION SLOWED DOWNAfter a low inflation period in 2015, growth in 2016 is again driven by price increases. Consumption growth slowed down post a healthy first quarter of 2016

FMCG GROWTH TREND IN SRI LANKA, GENERAL TRADE

Source: Nielsen Sri Lanka, RMS Data, for All FMCG + Soft Drinks, from General Trade, excluding NP, Year 2016, New Universe Data

0.5%-1.1%

-1.0%-0.4% 1.1% 2.1% 2.5% 3.0%

7.8%

6.6%4.8%

5.9%

9.5%

3.9% 4.7%4.4%

8.3%

5.6%3.8%

5.6%

10.6%

5.9%7.2% 7.4%

Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16

Price change component Volume change component Overall growth

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INFLATION WAS LARGELY SEEN IN PERSONAL CARE AND OTCPrices of OTC products went up despite price control on some categories. Household Care Products see a decline in average price as low priced brands gain market share

Source: Nielsen Sri Lanka, RMS Data, for 25 Categories + Soft Drinks, from General Trade, Year 2016, New Universe Data

-2

+3

-1

+3Household Care Products

Personal Care Products

Food & Beverages

Over The Counter Products

AVERAGE PRICE OF CATEGORY IN 2016 INDEXED TO 2015

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CONSUMERS SEEK VALUE FOR MONEY IN LARGE PACKSWhile price benefits of Large Packs was sought by consumers, they also upgraded to higher price tiers across categories

Source: PACK SIZE ANALYSIS: Nielsen Sri Lanka, RMS Data, for FMCG excluding OTC (30 Categories), from General Trade, Year 2016, Old Universe Data

Source: PRICE POINT ANALYSIS: Nielsen Sri Lanka, RMS Data, for All FMCG (36 Categories including Soft drinks), from General Trade, Year 2016, Old Universe Data

42%

47%

11%

43%

47%

10%

SHARE OF PACK SIZES TO VALUE SALESInner ring 2015, outer ring 2016

% Change in Average

Price over Year Ago2.8% 2.2% -6.4%

SMALL MEDIUM LARGE

7%

76%

17%

10%

73%

17%

SHARE OF PRICE SEGMENTS TO VALUE SALESInner ring 2015, outer ring 2016

% Growth over Year

Ago-25% 12% 11%

LOW MID PREMIUMLow price Segment: Brand average price is equal or less than 80% of the category average pricePremium Segment: Brand average price is equal or more than 120% of the category average price

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COMMODITY TO BRANDING AIDED FOOD PRODUCTS, ESPECIALLY IN RURALRural growth picked up to a level higher than Urban after a few quarters, across categories

Value growth

over year ago

FMCG GENERAL TRADE IN SRI LANKA, SEGMENT WISE VALUE CONTRIBUTION AND GROWTH

Source: Nielsen Sri Lanka, RMS Data, for All FMCG + Soft Drinks, from General Trade, Year 2016, New Universe Data

68%

30%2%

FOOD NON-FOOD OTC

8.1% 5.9% 2.6%

36 36 36 38

64 64 64 62

FMCG FOOD NON-FOOD OTC

URBAN RURAL

(8.2%)

(8.0%)

(10.8%)

(3.3%)

(7.7%)

(-0.3%)

(8.9%)

(6.4%)

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Some Beverages grew on distribution while most categories growth was aided by higher per store off-takes

Source: Nielsen Sri Lanka, RMS Data, for All FMCG + Soft Drinks, from General Trade, Distribution growth is for Dec 2016 Vs. Dec 2015, and Value growth is for 2016 Vs. 2015 , New Universe Data

F&B

IMPULSE PRODUCTS

HOUSEHOLD CARE

PERSONAL CARE

OTC

DISTRIBUTION GROWTH WAS RESTRICTED TO SMALLER CATEGORIES

HOME INSECTICIDES

HAIR DYE

YOGHURT

DEODORANTLIGHT SNACKS

HOUSEHOLD CLEANERS

SHAMPOOS/CONDITIONERSSANITARY NAPKINS

RUBS & BALMSNOODLES

MILK CHOCOLATES

MOSQUITO REPELLENTS

PERFUMES/COLOGNESCREAMS & LOTIONS

FACE WASHMILK POWDERSOYA MEAT

BATTERIES

WASHING POWDERTOILET SOAP

TEA

SHAVING EQUIPMENT

BISCUITS

HAIR STYLING

TOOTH BRUSHES

WASHING SOAPSQUASHES & CORDIALS

CSD

MILK FOOD DRINKS

ANALGESIC / COLD PR

INFANT MILK FOOD

COOKING AIDS

MILK RTD

FRUIT JUICES

ENERGY DRINK

-10

-5

0

5

10

15

20

25

-15 -10 -5 0 5 10 15

TOOTHPASTE

DISTRIBUTION GROWTH%

VA

LU

E G

RO

WT

H%

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SOFT DRINKS WAS AMONGST THE FASTEST GROWING CATEGORIESIncrease in average summer temperature and higher per store off-takes helped Soft Drinks tide over the floods related issues and lower distribution

Source: Nielsen Sri Lanka, RMS Data, for CSD, General Trade, Year 2015 and 2016, New Universe Data

32 32 32 32

33 34

32 31

MAR15 APR15 MAY15 JUN15 MAR16 APR16 MAY16 JUN16

TEMPERATURE IN CELCIUS IN 2015 & 2016

# Summer temperature in 2016 was higher than in 2015

# The month of May saw floods all across the island

impacting distribution and stock levels

DISTRIBUTION IN THOUSAND STORES FOR SOFT

DRINKS 2015 & 2016

# Summer month distribution levels in 2016 were lower than

2015

# The floods in May and June 2016 also impacted stock

availability

PER DEALER OFFTAKES IN LITERS FOR SOFT DRINKS

2015 & 2016

# However, the per-store off-take went up in 2016 to cater

to higher temperature and stock issues in summer months

140145 144

140 139 142136 135

MAR15 APR15 MAY15 JUN15 MAR16 APR16 MAY16 JUN16

101118 110 104

129145

126100

MAR15 APR15 MAY15 JUN15 MAR16 APR16 MAY16 JUN16

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CHEMISTS AND COSMETIC STORES EMERGED AS GROWTH CHANNELSTraditional Grocers remain the main channel. Chemists and Cosmetic Stores emerge as options for the upmarket consumer offering a better, premium range of brands. Modern Trade is around 15% of the market

12-15%

Contribution of

Modern Trade to All

Island FMCG Sales

estimated through

secondary sources

Value Growth of

channels types, 2016 vs.

2015

FMCG GENERAL TRADE IN SRI LANKA, CHANNEL WISE CONTRIBUTION AND GROWTH

Source: Nielsen Sri Lanka, RMS Data, for All FMCG (33 Categories excluding Soft drinks), from General Trade, Year 2016, New Universe Data

60%

79%

1%

7%

11%

5%26%

7%

Contribution toFMCG Store

Universe

Contribution toFMCG Sales

5%

13%

-3%

2%

30%

GROCERS

CHEMISTS

RESTAURANTS

OTHERS

COSMETIC STORES

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GENERAL TRADE CAME BACK AS MAJOR CHANNEL FOR FMCG PURCHASESemi Wholesalers, offering a significant discount over market price, are the main channel for about a fourth of the population

Source: Nielsen Sri Lanka Survey, 2014, 2015, 2016

21% 23%19%

54%49%

56%

21%24% 23%

2014 2015 2016 2014 2015 2016 2014 2015 2016

SUPER MARKET / CHAINS GENERAL TRADE STORES SEMI WHOLESALE STORES

PERCENTAGE RESPONDENTS USING DIFFERENT CHANNELS AS MAIN CHANNEL FOR REGULAR FMCG PURCHASE

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SRI LANKS ROSE ON THE ATTRACTIVENESS INDEX FOR MODERN RETAILINGSmall format stores in are expected to drive Modern Retailing growth in Sri Lanka in line with retail trends in APAC

Source: Global Retail Development Index, AT Kearney analysis 2016

18

14

12

2015

2016

2014

Sri Lanka

Ranking

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THE FMCG INDEX ON COLOMBO STOCK EXCHAGE DECLINED ~ 5% However, the FMCG market grew about 9% in value as large local companies saw healthy growth in sales

Source: Nielsen Sri Lanka, RMS Data, for All FMCG (38 Categories), from General Trade, Year 2016, New Universe Data

BEVERAGE, FOOD AND TOBACCO INDEX: CSE 2016 VALUE GROWTH FROM TOP 10 FMCG COMPANIES(Ranking 1-10 from left to right), NIELSEN RETAIL Audit Data (GT)

Blue bars indicate the company is listed on CSE

4% 6%11%

1% 1%5%

23%

7% 5%

35%

MN

C

Lo

ca

l

MN

C

MN

C

Lo

cal

MN

C

Lo

ca

l

Lo

ca

l

Lo

ca

l

MN

C

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LOCAL COMPANIES GAVE 2/3RD OF THE INCREMENTAL FMCG SALESWhile they account for about 55% of the sales share, local companies accounted for 67% of incremental sales over two years – driven by both distribution expansion and per store sales growth

Source: Nielsen Sri Lanka, RMS Data, for All FMCG (38 Categories), from General Trade, excluding NP, Year 2016, Old Universe Data

45%33%

55%67%

Share of FMCG Sales 2016 Share of Incremental FMCGSales, 2016 vs 2014

MNCs LOCAL

0%

2%

5%

9%

MNC Local

Distribution PDO

MNC VS LOCAL COMPANY PERFORMANCE IN FMCG DISTRIBUTION PERFORMANCE CAGR, 2016 VS 2014

24

News from other sectors!

M i

Source: Nielsen Sri Lanka Survey 2016, amongst age group 16-60, All Island, All SECs

92%Mobile penetration in

Sri Lanka, Year 2016

28 %Smartphone penetration

in Sri Lanka, Year 2016

32%Internet penetration in

Sri Lanka, Year 2016

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32%

68%

21%

79%

ABOUT A THIRD OF SRI LANKA NOW HAS ACCESS TO INTERNETInternet penetration grew significantly in last two years and penetration of smartphones has helped this growth

Source: Nielsen Sri Lanka Survey 2016, amongst age group 16-60, All Island, All SECs

INTERNET PENETRATION, SRI LANKA 2016

Inner circle 2014, Outer circle 2016

13%

DONGLE

86%

MOBILE

6%

ADSL

MEDIUM OF ACCESS FOR INTERNET, SRI LANKA 2016

Some use multiple means

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DATA WILL REMAIN FOCUS FOR GROWTH IN TELECOMLike Global Trends, data consumption is increasing in Telecom and service providers will do well to come up with attractive options to ride this trend

Source: Colombo Stock Exchange, *Nielsen Sri Lanka Survey 2016, amongst age group 16-60, All Island, All SECs

TELECOMMUNICATION INDEX: CSE

11%

23%

9%

18%

5%

16%

20

14

20

16

20

14

20

16

20

14

20

16

Social Media Browsing You Tube

USAGE OF MOBILE DATA FOR DIFFERENT PURPOSE*

cF a~85% 12% 5%

Bank account penetration in

Sri Lanka, (amongst adults, Year 2015-

16)

Credit Card

penetration in Sri

Lanka, Year 2016

Online banking

penetration in Sri

Lanka, Year 2016(amongst those using any banking

service)

Source: Nielsen Sri Lanka Survey, 2016, amongst age group 20-60 years, SEC A, B, C & D

esliVe-57%

New Registrations in ‘000 of

Motor Vehicles in Sri Lanka

Growth of new Motor Cars

registration, 2016 vs. 2015

Source: Motor Vehicles Department, Sri Lanka

Growth of new Motor

Tricycles registration,

2016 vs. 2015

-56%327

430

669

493

2013 2014 2015 2016

30

Who is advertising and where in Sri Lanka?

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TV CONTINUED TO RETAIN LION SHARE AS DIGITAL EXPANDS GLOBALLYDigital commands almost a 1/3rd share of Ad spends globally. In Sri Lanka, Radio has a significant share

Source: Global Ad Spends – ZenithOptimedia, Sri Lanka Ad Spends Nielsen Lanka Ad Tracking Solution, Internet includes wired and mobile

Total spends

2016 LKR

90bn

5%Growth year

on year

TV share

70%Radio share

22%Print share

8%

37%

32%

18%

6%

7%1%

39%

24%

22%

7%7%

Television

Internet

Radio

OOH

Print Cinema

SHARE OF GLOBAL AD SPENDS BY MEDIUMInner ring 2014, outer ring 2017

SRI LANKA AD SPENDS LANDSCAPE*Excludes OOH, Internet, Cinema

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RADIO AND PRINT CONTINUED HEALTHY GROWTH IN SRI LANKAAs newer sectors (BFSI, Luxury Brands) grow, Print media enjoyed high growth. Radio helps drive tactical promotions and messaging

Source: Sri Lanka Ad Spends Nielsen Lanka Ad Tracking Solution

Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16

TV Radio Print2%

14%

11%

SRI LANKA AD SPENDS TREND BY MEDIUM SRI LANKA AD SPENDS GROWTH 2016 VS. 2015

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TOP 3 SPENDERS REMAINED FMCG, FINANCIAL SERVICES AND TELCOFMCG spends accounted for almost half of TV spends while Financial Services spent on Radio and Print too

Source: Sri Lanka Ad Spends Nielsen Lanka Ad Tracking Solution

14%

36%

10%

11% 12%9%

FinancialServices

FMCG Telco

10%

45%

10%

24%

17%

13%

17%

9%

5%

SRI LANKA AD SPENDS 2016, SHARE OF SECTORS BY MEDIUM

TOTAL TV RADIO PRINT

GROWTH IN AD SPENDS BY SECTORS, 2016 VS 2015

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• GDP growth slowed down in 2016

• Policy uncertainty impacted Business Confidence

• Consumers are cutting down consumption on

account of inflation

• FMCG growth in high single digits, inflation

picks up again

• Consumers look for ‘Value for Money’ but adopt

premium products at the same time

• Chemists emerge as a growth channel

• Local companies drive growth

• Internet penetration and Smart phone usage

continues to grow

• Online banking still low on penetration

• New Motor Vehicles registration dropped in 2016

• Television continues to be the major advertising

medium but Radio and Print grow faster

• Financial Services and Telecom Service providers

are major Non-TV advertisers

2016 S RI LANKA

UMMARY

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• Fiscal consolidation will continue for Sri Lanka

• There will be short term pain but Businesses and

Consumers would do good to be patient for the

benefits to come in

• Specialist Channels will continue to grow in Sri

Lanka

• Local, regional players will emerge as

competition and growth drivers

• Data penetration and consumption will continue to

grow, also enabling Online banking and shopping

• Taxes, duties and registration policy will define

growth for vehicles

• Digital media will become more and more important

• DTH channels will see higher penetration and share

of TV spends

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Research helps uncover and manage uncommon shifts!!

CONSUMERIZATION:How to organize around

consumers by building a

proprietary understanding

about the brand’s most

profitable consumers and

then activating across the

entire business system

against these segments

SALES

EFFECTIVENESS: How to activate

plans through

superior sales

execution, effective

assortment and

integrated price and

promotion decisions

INNOVATION: How to improve the

brand’s innovation

success rate: identify

white spaces and

unmet needs, develop

better products faster,

and increase launch

performance

MARKETING

EFFECTIVENESS:How to engage

consumers through

effective and

efficient marketing