Nielsen, Sri Lanka

Q3 2016 DASHBOARD

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IMPRESSIONS!

Three months into the role and I have possibly seen two extremes already. After a good Q1 2016 for the GDP, growth moved downwards in Q2 due to the floods and slow down on investments. The new budget carries great significance for businesses as well as consumers and we will closely watch the trends in the coming few quarters. Investment friendly budget will certainly help but the impact of VAT may impact consumption and spends. Do write to me or talk to me for questions or business issues you would like Nielsen to look into Thanks….

S h a r a n g P a n t Managing Director, Nielsen Sri Lanka sharang.pant@nielsen.com +94 779 521 600

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GDP at Constant Prices

GDP SLOWDOWN IN Q2 AFTER AN UPTICK IN Q1 Drop largely came from Agriculture sector while Industries and Services saw a marginal drop

Source: Dept. of Census and Statistics

59.4% 60.7%

24.6% 24.4%

8.2% 7.5% 7.8% 7.3%

Services IndustrialAgriculture Taxes less subsidies

QUARTERLY GDP & CONTRIBIUTION BY SECTOR

LKR 2,076 Bn LKR 2,130 Bn

Q2-2015 Q2-2016

Co

ntr

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DP

by

Sect

or

Serv

ice

s In

du

stri

al

Agr

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ltu

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SUB SECTOR WISE GROWTH % (+ SELECTED SUB SECTORS)

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MACRO ECONOMIC INDICATORS CONTINUED UNDER PRESSURE IN Q3 Inflation and currency depreciation intensified in Q3

Sources: Central Bank and Dept. of Census and Statistics (GDP and Inflation); BBC Financial Data (Exchange Rate); Central Bank (Interest Rates)

1.3 2.2

5.0

10.3

4.4

7.0

5.6

2.5

5.5

2.6

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16

GDP Growth (Base Year - 2010)

QUARTERLY GDP GROWTH % (VS SAME QUARTER OF PREVIOUS YEAR) INFLATION % (12 MONTH [ANNUAL] AVERAGE)

COMMERCIAL BANKS AVERAGE INTEREST RATES IN % USD-LKR EXCHANGE RATE (03 NOVEMBER 2016)

Change vs. 52 Week Low: (5.1%) 0

4

8

12

16

20

Sep

'16

Jul'1

6

May

'16

Mar

'16

Jan

'16

No

v'15

Sep

'15

Jul'1

5

May

'15

Mar

'15

Jan

'15

No

v'14

Sep

'14

Jul'1

4

May

'14

Mar

'14

Jan

'14

No

v '1

3

Sep

'13

Jul '

13

May

'13

Mar

'13

Jan

'13

No

v '1

2

Sep

'12

Jul '

12

May

'12

Mar

'12

Jan

'12

No

v '1

1

Average Weighted Lending Rate Average Weighted Deposit Rate

-4

-2

0

2

4

6

8

10

12

Jan

'13

Mar

'13

May

'13

Jul'1

3

Sep

'13

No

v'13

Jan

'14

Mar

'14

May

'14

Jul'1

4

Sep

'14

No

v'14

Jan

'15

Mar

'15

May

'15

Jul'1

5

Sep

'15

No

v'15

Jan

'16

Mar

'16

May

'16

Jul'1

6

Sep

'16

Total Food Non Food

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INFLATION LED TO CONCERNS ON REGULAR SPENDS While Economy was still a worry, increasing spends for Children’s education, food and Utilities weighed on consumers’ minds

Source: The Nielsen Company Consumer Confidence Report, Frequency: Quarterly; Base : All respondents n=300 per quarter

46

46

6

7

22

5

20

18

37

51

9

13

21

11

13

9

31

49

14

19

15

5

14

6

The economy

Children's education and / or welfare

Increasing food prices

Increasing utility bills

Health

Work / Life balance

Job Security

Political Stability

Q3 2015

Q2 2016

Q3 2016

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PRIORITIES DIFFERED BY GENDER Men were relatively more concerned about the Economy and Job Security while women worried about increasing spends on education

Source: The Nielsen Company Consumer Confidence Report, Frequency: Quarterly; Base : All respondents n=300 per quarter

Concerns over the next 6 months

34% 27%

41% 55%

20% 09%

14% 13%

Economy

Children’s Education/Welfare

Job Security

Increasing Food Prices

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BULK OF SPARE CASH STILL PUT INTO SAVINGS FOR FUTURE Children’s education took priority while home improvement and vacations took back seat

Source: The Nielsen Company Consumer Confidence Report, Frequency: Quarterly; Base : All respondents n=300 per quarter

46%

31%

11%

04%

02%

HOW IS SPARE CASH UTILIZED AFTER SPENDING ON

ESSENTIAL LIVING EXPENSES?

I have no spare cash

Putting into savings

Savings for children’s education

Children’s tuition

Home improvement

Q3 2016

Change over same quarter last year

13%

10%

02%

00%

3%

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FMCG CONSUMPTION WITNESSED A MARGINAL INCREASE THOUGH Small growth in consumption but a higher increase was seen in price led growth. Rural growth once again above urban growth after almost a year

Source: Nielsen Sri Lanka, RMS Data, for All FMCG (Tracked Categories + Soft Drinks), from General Trade excluding NP, Sept 2016

6%

4% 1% -1% -1% 0% 1% 2.1% 2.5%

8%

8%

9% 9% 7% 8%

11% 4.9%

5.1%

14% 12%

10% 8%

6% 8%

13%

6.9% 7.6%

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

Volume change component Price change component Overall growth

Value Growth % by Urban and Rural

Urban 12 7 4 6 6 9 16 8 7

Rural 14 14 13 8 6 8 10 6 8

Total FMCG, Value Growth Trend

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A LARGE ENOUGH PRICE INCREASE WAS SEEN FOR F&B PRICES Food categories like Biscuits, Milk Food Drinks and Yoghurt saw prices go up in Q3’16

Average Price (Indexed to Q3 15)

Value contribution % to FMCG Sales

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

FOOD & BEVERAGES 68 100 105 100 98 101

HOUSEHOLD CARE 9 100 100 100 101 101

PERSONAL CARE 21 100 102 103 101 102

OTC PRODUCTS 3 100 100 100 103 106

Source: Nielsen Sri Lanka, RMS Data, for All FMCG (Tracked Categories + Soft Drinks), from General Trade excluding NP, Sept 2016

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MEANWHILE, POSITIVE SIGNALS STARTED COMING IN.. News that made headlines in Q3 2016

Source: www.ft.lk

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..RESULTING IN A GRADUAL INCREASE IN CONFIDENCE LEVELS The BCI & CCI started witnessing a gradual increase with more clarity on policy and investments

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 - From 2011 onwards Nielsen tracks the consumer confidence index every month among 100 consumers in Western, Central and Southern provinces. The Index is

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

* While the BCI is usually published at a monthly level in order to obtain immediate trends, in this analysis the data is rolled over 3 months to see the underlying trends and make it comparable to the CCI as well

BCI Base: 3 months rolling sample 100 per month* CCI Base: 3 months rolling sample of 100 per month

59 59 60 62 67 68 64

59 60 63 65 62 59 59 67 68 69 65 66 64 63 62 64 61 62 65

75 80 84 87 85 83 79 79 78 83 87 89

84 75

70 65 68 65 66

56 52 46

54

117 126 130

136 144 146 148

142 139 132

122 122 120 126 129 133 136 131 134 133

139 138 140 138 136 132 134 138

160 165 169

155 153 156 156 163

178 179 172

156 153 148 148 149 150

140 131 131

139

Se

p'1

2

Oct'1

2

Nov'1

2

Dec'1

2

Jan

'13

Fe

b'1

3

Ma

r'13

Ap

r'1

3

Ma

y'1

3

Jun

'13

Jul'1

3

Au

g'1

3

Se

p'1

3

Oct'1

3

Nov'1

3

Dec'1

3

Jan

'14

Fe

b'1

4

Ma

r'14

Ap

r'1

4

Ma

y'1

4

Jun

-'1

4

Jul-'1

4

Au

g'1

4

Se

p'1

4

Oct'1

4

Nov'1

4

Dec'1

4

Jan

'15

Fe

b'1

5

Ma

r'15

Ap

r'1

5

Ma

y'1

5

Jun

'15

Jul'1

5

Au

g'1

5

Se

p'1

5

Oct'1

5

Nov'1

5

Dec'1

5

Jan

'16

Fe

b'1

6

Ma

r'16

Ap

r'1

6

Ma

y'1

6

Jun

'16

Jul'1

6

Au

g'1

6

Se

p'1

6

CCI BCI

Nielsen Consumer Confidence Index and LMD-Nielsen Business Confidence Index

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Q3 IN SUMMARY

Economic growth dipped again in Q2 2016, largely because of a poor agriculture sector performance. In Q3, inflation and increasing bank rates continued to be cause of worry for consumers.

As wanted by many, positive news on the economy and policies started coming in Q3. Immediate impact was seen in Business Confidence as well Consumer Confidence levels as both moved up gradually. The budget will go a long way in defining the trend way forward.

After the floods in Q2, FMCG consumption witnessed a marginal increase. However, increase due to price changes was higher and consumers may be watchful in their spending especially in Food and Beverage categories. Impact of VAT increase in Q4 needs to be analyzed further