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Diageo’s India net sales rise 2% in fiscal 2017

LiveMint logoLiveMint 27-07-2017 Deepti Govind

Bengaluru: Diageo Plc, which owns United Spirits Ltd (USL), said its India net sales grew 2% in the year ended 30 June. In its preliminary earnings issued on Thursday, the British liquor giant said it considers it very unlikely that it will become liable to pay future instalments to former USL chairman Vijay Mallya under a previous deal.

India sales grew despite the hit from the government’s demonetisation move and the Supreme Court ruling banning the sale of alcohol near highways, Diageo said.

It expects the impact from the highway ban to continue, albeit at a lesser rate, as well as a hit from the implementation of the goods and service tax (GST) on margins in the next financial year. Indian made foreign liquor (IMFL) whisky represents 5% of Diageo’s total net sales and grew 6% during the last financial year, aided by double-digit growth rates for its McDowell’s No.1 and Signature brands that were relaunched during the period.

Diageo-USL’s ‘prestige and above’ segment, which consists of premium brands like Royal Challenge and Antiquity whiskies, reported organic net sales growth of 7% during the year – slower than growth rates of 9% and 10% in the first and second half of the previous financial year, respectively.

ALSO READ: Diageo asks Vijay Mallya to return $40 million, seeks compensation

“We gained over 20bps of spirits industry share in the 12 months through May with prestige and above brands gaining over 70bps of industry share,” Ivan Menezes, chief executive of Diageo said in an investors’ presentation on the company’s website.

But organic net sales of its popular (economy) brands declined 5%, particularly within the rum category. Rum accounts for 7% of the British company’s net sales and grew 4% at a global level. However, net sales of rum in India fell 8%, driven by McDowell’s No.1 rum.

As part of the disclosures in its statement, Diageo also shed more light on a deal it made last year with former USL chairman, Mallya.

On 25 February, 2016, Diageo entered into a deal with Mallya in exchange for the latter’s resignation as chairman and director of USL and its subsidiaries. It also put in place a five-year global non-compete (excluding the UK), non-interference, non-solicitation and standstill agreement with Mallya.

A payment of £28 million was made to Mallya—who flew to the UK last March as creditors closed in on him to recover Rs9,000 crore owed by his defunct Kingfisher Airlines Ltd —by Diageo in the year ended 30 June 2016. But in its statement on Thursday, the British firm said it was not liable to pay the embattled liquor baron the $7 million (£5 million) instalment this February due to various reasons, including breaches of several provisions of its 2016 deal.

It is very unlikely that it will become liable to pay future instalments and, therefore, the outstanding £23 million provision has been credited back to Diageo’s income statement, the company added.

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