Tata Global Beverages Ltd

BSE: 500800 | NSE: TATAGLOBAL | ISIN: INE192A01025 
Market Cap: [Rs.Cr.] 9,464.61 | Face Value: [Rs.] 1
Industry: Tea

Management Discussions
MANAGEMENT DISCUSSION

BUSINESS OVERVIEW

The operating environment globally remains challenging with category decline in blacktea in some developed markets, changes in consumer behavior and high competitiveintensity. At the same time, new trends are emerging driven primarily by health andconvenience led consumer needs. Your Group continues to constantly strive to meet thesechallenges with a focus on higher spending on brands, category expansion, innovation andcost rationalisation. During the year under review, your Group continued to significantlyinvest in the marketing campaigns launched in US, UK, India and Russia. The year witnessedthree major relaunches; namely in Eight O’Clock Coffee in USA, Grand Coffee in Russiaand Chakra Gold Tea in India and two major marketing and advertisement campaigns forTetley Green Tea in India and for Tetley brand in UK. Branded tea volumes remained 3atwith growth in India tea being offset by lower volumes in some developed markets. Brandedcoffee pods volumes showed significant growth in US. The year also saw significant volumegrowth in the water portfolio. Tata Starbucks stores also increased its footprint andreceived good consumer response.

INDUSTRY STRUCTURE - GLOBAL ECONOMIC, CONSUMER AND COMPETITOR TRENDS

There are signs of revival of economic growth in developed countries like the UK and USand the overall outlook is more positive, reflected also by the buoyancy in capitalmarkets. In India the strong election results have raised hopes that the country will getback into a higher growth trajectory and progress towards realising its full potential.

However consumer spending is still cautious and there is increasing competitiveintensity driven by consolidation of retail trade, new entrants and changing consumerpreferences. While the consumer continues to be value conscious, product choice isincreasingly driven by health and convenience. There is also an emerging trend of demandfor more premium products of higher quality in many markets.

INDUSTRY STRUCTURE 3 COMMODITY TRENDS

Globally, black tea production in 2013 increased by about 7% led by record crops inIndia, Kenya and Sri Lanka and higher than previous year production in most producingcountries. The year also saw strong consumption growth in developing countries like India.Green tea consumption across the world appears to be on the rise driven by health benefitsof the beverage. Cyclical swings in coffee commodity markets are common and the mostrecent years have been especially volatile for the price of coffee. The supply and priceof both coffee and tea are subject to significant volatility. Supply and price of both teaand coffee grades are affected by multiple factors, such as weather, natural disasters,crop damage, farm inputs, cost of production, and wage increases. In the case of coffee,price is also impacted by currency movements and trading activities in the coffee futuresmarkets. We continually monitor commodity costs, market and supplier strategies tooptimise our cost structure.

CONSOLIDATED FINANCIAL AND OPERATING PERFORMANCE

The consolidated financial highlights for 2013-14 are as follows:

Rs. in crores
2013-14 2012-13 Variance
Operating income 7,738 7,351 387
Operating Profit 623 663 (40)
Profit before exceptional items and taxes 618 665 (47)
Exceptional items (net) 89 (28) 117
Profit before tax 707 637 70
Profit after tax 522 473 49
Group consolidated net Profit 481 373 108

For the year ended 31st March 2014, Operating income at Rs 7,738 crores was 5% higherover previous year mainly reflecting improved performances in markets like India, WesternEurope, France, Middle East, Australia along with favourable impact of currency movementsand new ventures. Sales growth in certain markets such as UK, US, and parts of EasternEurope continue to be challenging. Operating Profits at Rs 623 crores is lower thanprevious year, mainly on account increased expenditure on brands, increased costs tosupport scaling up in new ventures and lower sales performance in some internationalmarkets.

Exceptional items for the year mainly represents Profit on sale of property inBangalore, Profit on sale of long term investments, recognition of hitherto unrealisedProfits relating to sale of Plantation division offset by disposal of investments in anoverseas functional beverage company and costs pertaining to distribution modelrestructure.

The tax rate for the year ended 31st March 2014 is consistent with the prior year.

Profit after tax for the period at Rs 522 crores was higher than the prior year by 10%mainly due to high level of exceptional income. After considering share of Profits ofassociates and minority interest, Group consolidated Profit of Rs. 481 crores is higher by29% compared with the prior year.

STANDALONE FINANCIAL AND OPERATING PERFORMANCE

Rs. in crores
2013-14 2012-13 Variance
Operating income 2,683 2,326 357
Operating Profit 268 222 46
Profit before exceptional items and taxes 413 303 110
Exceptional items (net) 172 18 154
Profit before tax 586 321 265
Provision for tax 139 62 77
Profit after tax 447 259 188

For the year ended 31st March 2014, operating income at Rs 2,683 crores was 15% higherthan the previous year mainly attributable to improved performance of the branded teaoperations aided by both price and volume increases. Profit before exceptional income atRs 413 crores increased by 36% over previous year due to improved operating performanceand increase in income from overseas investments.

Exceptional items were favourably impacted due to sale of some investments and Profitarising from sale of property in Bangalore.

Average tax rate is higher than3previous year mainly due to higher operating Profits,higher tax impact of exceptional items partially offset by higher tax write-backs.

Profit after tax was higher than previous year on account of improved operationalperformance, higher dividend income and higher exceptional income.

PRODUCT / BRAND

PERFORMANCE - TEA & COFFEE

Your Company’s products and brands in tea and coffee continued to create manymagical moments for millions of consumers across the globe. Significant amongst newo3erings were a slew of green tea related launches in various countries. Tetley 100%steamed green teas were launched in Canada and Australia in three delicious variants– pure, lemon and ginger. This range of green teas is gently steamed immediatelyafter picking of the tea leaves, to lock-in its fresh, pure flavour. The USA witnessed thelaunch of Tetley Black & Green tea. This product o3ers tea lovers the best of both inone cup: the full flavour of black tea, and the goodness of green tea. In India, asignificant marketing and advertising campaign has just begun for Tetley green tea. Thecampaign highlights the significant benefits of green tea.

Some key country-wise highlights of the year under review are given below, whichprovide an overview of several important aspects of product and brand initiatives, as wellas performance:

UNITED KINGDOM

The business in UK was impacted by lower volumes attributable to continuing black teamarket decline and higher competitive and trading intensity. However speciality teas andgreen tea performed very well. The business maintained leadership in the Redbush category.Four new Tetley flavoured green teas (‘mint’, ‘mango & passionfruit’, ‘peach & apricot’, ‘raspberry & pomegranate’)were launched with a major retailer in March this year. Sales of our premium teapigsbranded products continue to grow significantly. The brand is now being launched intoother geographies.

The Group continues to retain the highest social media fan retention with approximately5,16,000 Facebook fans for our Tetley Tea Folk page which is higher than competition.

UNITED STATES OF AMERICA

Despite significant improvement in the coffee pods volume, the traditional coffeevolumes were impacted driven by competitive pressures and perceptible shift in consumerpreferences to growing alternate formats i.e. pods. During the year, the EightO’clock brand was relaunched with several new products and new packaging. In the teacategory, the company launched new variants like Black &Green under the Tetley brandin a new snap top box. 14 new blends under a new pack design were launched under the GoodEarth Brand with the theme of "Tea Untamed". Flavours which were launchedincluded Mango me Macho, Sweetly Twisted, Citrus Kiss, Starry Chai and many more.

CANADA

Tetley performed well in terms of market sales and continued to maintain marketleadership. The distribution model was restructured during the year. Canada continues withits new product development agenda with the launch of Tetley 100% steamed green teas inthree flavours. Sales of these products are in line with expectation and consumer feedbackon the product has been very positive. The business also launched three new Tetley Tassimoproducts during the year. A massive integrated promotion was launched with Cirque duSoleil during the later part of the year which has been positively received by consumers.

AUSTRALIA

Australia performed well - sales were higher than previous year driven by addition ofnew customer and new product launches. Tetley Fruit and Herbal range has been relaunchedunder the pyramid format and have shown strong sales results. Post year end, your companyacquired a 100% stake in a mid-size company in Australia which is engaged in coffeebusiness under the "MAP" brand, which will further consolidate the operations inAustralia.

EUROPE AND MIDDLE EAST

Russia performance was impacted by faster decline in traditional channels and marketdeclines in spray and agglomerated coffees. The freeze dried o3ering under the Grand brandperformed well.

In Poland, changes to the business model to improve performance continued to result inmargin improvements as we continue to focus on higher margin branded products and onimproving sales efficiencies.

Czech Republic continues to show recovery which resulted in improvement in volumes, andcost reduction leading to higher growth. In France, Tetley brand increased both volume andvalue share in the market.

Tetley test market launch in Kuwait this year has performed well and saw an improvedbrand share. In the Green tea bags segment, the brand has already achieved secondposition. The Group is looking to expand into other markets in the Middle East later thisyear.

SOUTH AFRICA

Joekels, South Africa improved its net sales driven by increase in private labelvolumes. Overall branded business volumes also grew over the prior year, spearheaded byBlack tea and some growth in Rooibos.

INDIA

Your Company continued to maintain the volume and value leadership during the yearunder review. There was volume growth in both national and regional brands.

Good volume growth across National Brands portfolio – Tata Tea Premium, Tata TeaGold, Tata Tea Agni and Tetley:

Tata Tea Gold underwent restage during 2013-14 with the iconic Power of 49 campaign,supported by new TVC, association with the 14th Indian Film Academy Awards (IIFA) 2013,pack change, trade and visibility activation on ground & digital activation throughJaagore.com, Twitter and Face book.

Green tea launch was aided by ground level activation with a significant visibilitydrive.3The new Green tea television campaign with the proposition of "Inside walaahSnaan" was launched with Brand ambassador Kareena Kapoor Khan.

Good performance by regional branded portfolio namely Kanan Devan, Chakra and Gemini:

Chakra Gold was relaunched during the year driving improved sales. The relaunch wasbacked by new pack design with a new brand identity in addition to a new advertisingcampaign which went on air to improve brand imagery to make it premium, modern,aspirational and drive home the new positioning of ‘Golden infusion for the goldenwoman of today’.

Other regional brands like Kanan Devan and Chakra Gold benefitted from the timely tradepromotions to drive volumes.

TATA COFFEE

Tata Coffee has continuously moved up the value chain in its plantations business andin Instant coffee. Their expertise in the bean to brew value chain, efficient processesand focus on sustainability helped maintain a strong leadership position in the coffeebusiness. The expansion of the Theni instant coffee facility was completed during theyear. The company continues to supply into Starbucks operations in India and is exploringoptions of increasing supply into other markets.

PRODUCT / BRAND PERFORMANCE - WATER

NourishCo volumes continue to consolidate across all brands. Overall volumessignificantly increased over prior year backed by new product launches and distributionexpansion. Tata Water Plus, India’s first nutrient water, was launched with a newpackaging during the beginning of the year. Volumes and Profit margins have shownsignificant improvements post the launch. New flavours like Grape, Cinnamon and Applevariants have been launched under the Tata Gluco Plus portfolio. Himalayan brands continueto grow with several new marquee accounts while some unProfitable accounts weresurrendered.

OUTLOOK 3 CONSUMER, COMMODITY AND COMPETITION

Whilst there are clear signs of global economic revival, consumer behavior is yet toshow any definitive overall trend but seem to be seeking value even as discerningconsumers pursue aspirational and premium products. There is clearly an increasingconsumer focus on healthy natural beverages and easy to use consumption formats. In thedeveloped markets, there is decline in black tea consumption with growth in the specialitysegments. In developing markets, however, there is growth across sectors. In coffee, inUSA, Europe and Australia, there are clear signs of growth in single serve pods formatswhich are weaning away consumers from the traditional formats.

We expect the competition to continue to be very intense with aggressive promotions inthe market by all major competitors. In our major developed markets, the retailenvironment will continue to be very competitive, a situation likely to be furtheraccentuated by new entrants with a price focus.

On the commodity front, outlook for tea is mixed with increased production in mostproducing countries accompanied by strong consumption growth in developing countries. Thecoffee commodity market is expected to be volatile on the back of concerns over the levelof supply from Brazil.

The company will respond to the environmental challenges with a strong pipeline ofinnovations, investment behind brands, broad basing of the product, category presence andcost initiatives.

OUTLOOK - INTEREST RATES AND EXCHANGE RATES

Interest rate in India during the 3scal continued to be high because of persistentlyhigh inflation even as growth slowed down appreciably. RBI’s monetary policy had asingle minded focus on containing inflation. Going forward there is great optimism andexpectations from the new government. It is expected that strong policy initiatives willimprove growth rates and consumer confidence which should benefit your Company. Inflationand interest rates should trend downwards in the medium term.

In UK, Bank of England has kept interest rates at 0.50% despite significant improvementin leading economic indicators. However, the central bank may hike interest rates in thesecond quarter of 2015 due to faster-than-expected drop in unemployment rate. In US, theFed kept interest rates at record low level to lift the economy out of recession and toensure sustained economic recovery. Moreover, senior Fed o3cials have also maintained thatthe Fed should keep interest rates low due to uncertain outlook of economic growth and jobmarket.

Your Group has a mix of debt and cash in different currencies and at the current debtlevel, we do not expect a material impact on account of interest rate movements.

The rupee witnessed sharp depreciation on the back of surge in current account deficit.But in the second half of the year with certain restrictions on gold import, CAD wassubstantially brought down and with the overall improvement in sentiments, the FIIinvestment also saw improvement augmenting the rupee by the year end. The rupee isexpected to remain range bound within the short term and in the long term will always drawsustenance from the movement in the fundamentals.

In the UK the pound has appreciated significantly in 2014 . The fundamentals of theeconomy have also improved. Going forward, however some USD appreciation is expected onthe back of continuous tapering and improvement in US fundamentals. The company hedges itsexposure through a mix of forward contracts and options and is reasonably covered inrespect of its immediate trade flows. Overall the company benefitted from currencymovements during the year.

OPPORTUNITIES

The world is moving towards natural beverages, driven by health and wellness.Increasingly consumers are conscious of issues with carbonated drinks and are switching toenergy and health based options. Tata Global Beverages products and our vision speaks of‘good for you’ natural beverages which clearly presents an opportunity among thehealth and wellness conscious consumers. Green tea, source water from Himalayas and, ourDecaf coffees specifically addresses this consumer trend and we see growth potential inthe said categories and products.

The company has benefitted from its alliance with PepsiCo and Starbucks and isexploring opportunities to further expand the relationships.

THREATS, RISKS AND CONCERNS

The company is exposed to category decline in black tea in some developed markets. Itis also impacted by volatility in tea and coffee prices, retailer consolidation and growthof modern trade. The company continues to invest in its brands and focus on new productdevelopment and innovation in addition to distribution and geographic expansion in orderto meet these challenges.

The company is a relatively small player in the branded coffee segment and is focusingon product innovation and distribution expansion to build a bigger business.

In the water business, the company is in the early stages of building a portfolio ofproducts. It has developed a number of products which are in different stages of consumervalidation and launch. The business needs to scale up Profitably with growth in volumes.

In the Coffee business, the industry is seeing consolidation which could lead to someconsequent marginalisation of our presence in the market.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS - PERFORMANCE AND REWARD

During the year, the global calibration and reward processes were reviewed andimproved.

CULTURE CHANGE AND EMPLOYEE ENGAGEMENT

We launched the global employee engagement called Y.O.U. survey covering 2,501employees across Canada, Americas and Australia (CAA), Europe, Middle East and Africa(EMEA) and South Asia regions with 1,543 employees taking it through pen & paper and958 employees through web. We had an overall participation of 98.16% with CAA having 100 %participation.

Gallup shared the global results of the survey in February 2014 and it was followed bythe global leadership team meeting to deliberate on the results. As an outcome, the globalleadership team agreed to take forward certain defined themes as global priorities for theyear 2014-15.

TALENT AND CAPABILITY

Our focus on attracting and nurturing talent and developing capabilities remained sharpand focused. The Operations team in South Asia ran a customised program focusing on thebest practices.

REGIONAL HIGHLIGHTS

The Regional HR teams continue to drive the business forward through the implementationof strategic HR process and practices. Regional HR continued to focus on various employeeengagement and development initiatives through interventions like power hours, launch ofquarterly well-being program, personal development workshops. Gallup Impact Planning‘Train the Trainer’ workshop was concluded across the regions.

The total number of employees on the rolls of Tata Global Beverages Limited as of 31stMarch 2014 was 2,466. The Beverages group, which includes the Company’s subsidiariesemploys more than 11,000 people, including plantation workers.

INTERNAL CONTROLS AND GOVERNANCE

Your Company has adequate internal controls and robust systems in place to ensure thatall its assets are well protected. The Audit Committee of your Company review suchcontrols periodically. The

Internal audit function carries out a focused internal audit programme in consultationwith the Audit Committee. The internal audit primarily focuses on the adequacy ofappropriate systems and controls. The Tata Code of Conduct has prescribed guidelinesoutlining the key disclosure and governance requirements besides mandating the observanceof applicable statutory requirements by the Company. Your Company and its seniormanagement have afirmed adherence to the Code.

CAUTIONARY STATEMENT

Certain statements made in this report relating to the Company’s objectives,projections, outlook, expectations, estimates, among others may constitute‘forward-looking statements’ within the meaning of applicable laws andregulations. Actual results may differ from such expectations, projections etc., whetherexpress or implied. Several factors could make a significant difference to theCompany’s operations. These include climatic conditions, economic conditionsaffecting demand and supply, government regulations and taxation, natural calamity,currency rate changes, among others over which the Company does not have any directcontrol.

CONCLUSION

Your Company’s primary focus will be to regain and grow volumes across markets.The Group will address each market depending on local conditions. We recognise that theglobal environment is extremely challenging and the Group’s key focus areas would beto work towards achieving the business targets for the year through a mix of brand ledgrowth, efficient cost management and successfully scaling up of the new businesses.

   
Futures & Options Quote
Expiry Date :
155.10    1.20 (0.78%)
Instrument: FUTSTK
Expiry Date: 31-Jul-2014
Open Price: 153.05
Average Price: 154.09
No. of Contracts Traded: 6,068
Open Interest: 2,75,76,000
Underlying: TATAGLOBAL
Market Lot: 2,000
Previous Close: 155.10
Day's High | Low: 155.90 | 152.40
Turnover (Cr.): 187.00
Open Int. Change: 0,56,28,000 ([16.95]% )
Key Information

Key Executives:

Cyrus P Mistry , Chairman

Mallika Srinivasan , Director

Analjit Singh , Director

V Leeladhar , Director


Company Head Office / Quarters:

1 Bishop Lefroy Road,
,
Kolkata,
West Bengal-700020
Phone : West Bengal-91-033-22813779/3891/4422/4747 / West Bengal-
Fax : West Bengal-91-033-22811199 / West Bengal-
E-mail : investors.relations@tataglobalbeverages.com
Web : http://www.tataglobalbeverages.com

Registrars:

TSR Darashaw Ltd
6-10 Haji Moosa,Patrawala Ind.Estate,DrEMoses Rd Mahalaxm,Mumbai - 400 011

 
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