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26 OCT 2017

26 OCT 2017 Press release

Unaudited financial results for the quarter and 6 months ended 30 September 2017 Press Release

Second quarter performance improved substantially and PAT increased 84%

Second quarter performance highlights:

  • Reported net sales declined 4% impacted by the highway ban and the one off impact of operating model changes. Underlying net sales up 4% excluding the one off impact.
  • Prestige & Above segment reported net sales up 10% with 8ppts positive price/mix. Underlying net sales up 12% excluding the one off impact.  Popular segment reported net sales declined 22% impacted by the one off impact of operating model changes. Underlying net sales declined 9% excluding the one off impact.
  • Gross margin of 47,6%, up 559bps driven mainly by price increases, productivity initiatives and operating model changes. Underlying gross margin improvement of 395bps.
  • EBITDA Rs. 318 Crores, up 57%, EBITDA margin of 16.3%, up 631bps both primarily driven by increased gross margin and lower staff costs, partially offset by marketing investment increasing 11%. Underlying EBITDA up 37% and EBITDA margin of 16.3%, up 396bps excluding the one off impact
  • Interest cost Rs. 66 Crores, lower by 26% driven by favourable rates and mix of debt.
  • Profit after tax Rs. 153 Crores, up 84%.

First half performance highlights:

  • Reported net sales declined 8% impacted by the highway ban and the one off impact of operating model changes. Underlying net sales declined 2% excluding the one off impact.
  • Prestige & Above segment reported net sales up 1% with 4ppts positive price/mix. Underlying net sales up 2% excluding one off impact.
  • Popular segment reported net sales declined 21% impacted by the one off impact of operating model changes. Underlying net sales declined 9% excluding the one off impact.
  • Gross margin of 46,8%, up 415bps driven mainly by price increases, productivity initiatives and operating model changes. Underlying gross margin improvement of 258bps.
  • EBITDA Rs. 475 Crores, up 14%, EBITDA margin of 12.7%, up 251bps both primarily driven by increased gross margin and lower staff costs. Underlying EBITDA up 9% and EBITDA margin of 13.3%, up 135bps excluding the one off impact.
  • Interest cost Rs. 136 Crores, lower by 29% driven by favourable rates and mix of debt.
  • Profit after tax Rs. 216 Crores, up 71%.

 

Anand Kripalu, CEO, commenting on the quarter and six months ended 30 September 2017 said:


"In the second quarter we have delivered strong underlying net sales growth of 4% driven by 12% growth in the Prestige & Above segment, despite the impact of the highway ban. Additionally, we have delivered expanded margins despite the impact of GST.
Strong growth of the Prestige & Above segment was fuelled by our renovation and premiumisation strategy. Our brand renovations including McDowell’s No.1 whisky, Royal Challenge and Signature delivered double digit net sales growth in the second quarter; we expect Antiquity, our latest renovation, to deliver momentum in the subsequent quarters post the national roll out. The Prestige & Above segment now represents 63% of net sales.
Despite the implementation of GST which has resulted in stranded taxes, I am pleased that we have been able to deliver a robust underlying gross margin improvement in both the second quarter and first half, enabled by our accelerated productivity initiatives, price increases in select states, and our continued focus on premiumisation.
Our marketing investments were focused behind the Prestige and Above segment and increased by 11% in the second quarter and by 3% in the first half.
Increased gross margin coupled with organisational efficiencies has led to an underlying EBITDA margin improvement of 135bps and stood at 13.3% in the first half.
Lower interest costs and exceptional items have resulted in an overall PAT increase of 71%.
With the recent Supreme Court clarification on the highway ban, we have seen outlets start to re-open in September and we expect the impact of the highway ban to continue to decrease and the business to normalize by end of the third quarter. Based on our current expectations, through our continued focus on productivity initiatives coupled with price increases in select states, we expect the net adverse impact of GST on our margins to be moderate in this financial year.
We continue to focus on our strategic priorities to capture the long term opportunity in the spirits market and achieve our medium term ambition to grow top line by double digit and improve margins to mid-high teens."

ENDS

About Diageo

Diageo is a global leader in beverage alcohol with an outstanding collection of brands across spirits, beer and wine categories. These brands include Johnnie Walker, Crown Royal, J&B, Buchanan's and Windsor whiskies, Smirnoff, Cîroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness.

Diageo is a global company, and our products are sold in more than 180 countries around the world. The company is listed on both the London Stock Exchange (DGE) and the New York Stock Exchange (DEO). For more information about Diageo, our people, our brands, and performance, visit us at www.diageo.com. Visit Diageo’s global responsible drinking resource, www.DRINKiQ.com, for information, initiatives, and ways to share best practice.

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